[Senate Hearing 113-384]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-384
 
                   OUTER CONTINENTAL SHELF PRODUCTION 

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   TO

EXAMINE OUTER CONTINENTAL SHELF PRODUCTION AND TO IDENTIFY WHAT ACTIONS 
   THE FEDERAL GOVERNMENT CAN TAKE TO MAXIMIZE THE OPPORTUNITIES AND 
                        MINIMIZE THE CHALLENGES

                               __________

                      LAFAYETTE, LA, JULY 7, 2014

                       Printed for the use of the
               Committee on Energy and Natural Resources

                               ----------

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                   MARY L. LANDRIEU, Louisiana, Chair

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            DEAN HELLER, Nevada
MARK UDALL, Colorado                 JEFF FLAKE, Arizona
AL FRANKEN, Minnesota                TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia      LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii                 ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico          JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin

                Elizabeth Leoty Craddock, Staff Director
                      Sam E. Fowler, Chief Counsel
              Karen K. Billups, Republican Staff Director
           Patrick J. McCormick III, Republican Chief Counsel



                            C O N T E N T S

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                               STATEMENTS

                                                                   Page

Chiasson, Chett, Executive Director, Greater Lafouche Port 
  Commission, Galliano, LA.......................................    39
Cruickshank, Walter, Acting Director, Bureau of Ocean Energy 
  Management, Department of the Interior.........................     6
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     1
Leimkuhler, Joseph, Vice President--Drilling, LLOG Exploration 
  Company, L.L.C.................................................    25
Malbrough, Oneil, CB&I, Director of Coastal, Ports and Marine, 
  Environment and Infrastructure,................................    34
Ramsay, Court, President, Aries Marine Corporation...............    30
Satterlee, Kent, Manager, Offshore Regulatory Policy, Shell 
  Exploration and Production Company.............................    21
Sieminski, Adam, Administrator, Energy Information 
  Administration, Department of Energy...........................    10


                   OUTER CONTINENTAL SHELF PRODUCTION

                              ----------                              


                          MONDAY, JULY 7, 2014

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                      Lafayette, LA
    The committee met, pursuant to notice, at 1:35 p.m. at the 
Mardi Gras Room, Cajundome Convention Center, 444 Cajundome 
Boulevard, Lafayette, Louisiana, Hon. Mary Landrieu, 
chairwoman, presiding.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR FROM 
                               LA

    The Chair. Good afternoon.
    Let me call the Senate Natural Resources Committee of the 
U.S. Senate to order. Thank you all for joining us today for an 
official field hearing of this committee.
    I am so proud to chair this committee on behalf of the 
people of Louisiana. When the people of Louisiana hold this 
gavel good things happen, in my view, for the industry, the oil 
and gas industry, which is so important and vibrant in our 
country today, our State, the Gulf Coast region and the Nation.
    When our State first wielded the chairman's gavel, held by 
Bennett Johnston in 1987, there were significant obstacles to 
deep water drilling becoming the power house that it is today 
and actually the subject, OCS, of this field hearing. However 
by the time he left office after 20 years as a member of this 
committee and nearly 10 years as serving as chair the 
percentage of deep water leases had gone from 40 to 70 percent 
of the entire gulf. Because Senator Johnston was a Gulf Coast 
Senator, there have only been 2 chairs of the Energy Committee 
in the history of the United States from the East, both of us 
being from the Gulf Coast.
    He was focused on expanding and growing this industry and 
the thousands of high paying jobs it creates. I will do the 
same as chair.
    This February the people of Louisiana got this gavel back 
after waiting in line for 20 years. With this gavel now in hand 
I'm confident that this committee can use it in a way to expand 
this industry both onshore and offshore, reduce unnecessary and 
redundant regulations that cost time, money and jobs, build on 
the revenue sharing partnership that was actually established 
by this committee, led by myself and Senator Pete Domenici, 
when he chaired the committee. Also achieve American energy 
security for the first time in our Nation's history.
    We may do that as a Nation or we may do it as a North 
American continent. But in our lifetime it can be done with the 
changes of both technological, political and otherwise that are 
occurring in Canada, the U.S. and in Mexico. The State of 
Louisiana and our offshore energy industry will play a big role 
in making this goal. I think this is a worthy goal, an exciting 
goal, a reality.
    I'd like to thank all of our witnesses today for coming 
today. Look forward to hearing their thoughts on how Congress, 
the private industry and all stakeholders can work together to 
harness the abundant offshore revenues, both traditional and 
non-traditional, resources to provide real energy security for 
America and be a model industry for the world.
    Let me go into just a few minutes in this opening statement 
about the history of the OCS. Then we'll hear from our panel, 
our first panel. Then we have a distinguished group of industry 
leaders for our second panel.
    When our country was established America literally stopped 
at the water's edge. In 1973, in 1793 it was President George 
Washington who expanded the country and claimed all submerged 
areas, up to 3 miles off of our coast. If President Washington 
had gone further and claimed the entire Outer Continental Shelf 
of our 13 original colonies, he would have single handedly 
increased our country's land mass by 10 percent and added that 
much more land to the United States.
    However, it took 152 years and 32 more presidents.
    When Harry Truman then claimed the entire Outer Continental 
Shelf and the resources beneath it for the people of the United 
States this expanded our country's territory by 70 percent. 
There are resources in this land that may be under the water, 
but it's our land and it's our resource base. It must be 
harnessed and tapped to build the economy and security of the 
United States.
    Today we are here to hear from the Department of Interior 
and the Department of Energy on their plans to develop this 
extraordinary resource.
    Eight years later In 1953 Congress passed the Outer 
Continental Shelf's Lands Act, the first law of its kind. After 
President Truman claimed the Outer Continental Shelf for the 
U.S. Congress passed the first Outer Continental Shelf Lands 
Act, the first law of its kind to govern how the country would 
explore and harness the vast natural resources off of our 
shores. Twenty-five years later we updated the law and called 
on the Department of Interior to prepare and periodically 
revise a national assessment of our oil and gas leasing process 
on these lands.
    Today that is known as the DOI, Department of Interior's, 5 
year plan. Mr. Cruickshank is here to testify today as to what 
that plan is.
    It has also called on the Secretary of Interior to 
establish a number of planning areas to incorporate in each 
plan. There are currently 26 planning areas in the Outer 
Continental Shelf, 15 in Alaska, 4 along the Pacific Coast, 3 
in the Gulf of Mexico and 4 in the Atlantic.
    Currently there are only 36 million acres, an area only 
slightly larger than the State of Louisiana itself, that is 
actively leased. So a very small portion of the Outer 
Continental Shelf is actively leased. That's only 2 percent of 
the entire OCS.
    By comparison it would be as if the country stopped at 
Rhode Island, you know, or Vermont, you know, or whatever 2 
percent of the land mass is. So there's a tremendously vast 
area of the Outer Continental Shelf that should be, in my view, 
explored and looked at for what resources it might hold, either 
traditional or non-traditional resources, whether energy or 
otherwise, for the economic benefit of our people in the United 
States and in the world.
    The Department of Interior is currently drafting its 5 year 
plan for 2017 to 2022. We're currently operating on the 
previous 5 year plan. The process that we're beginning right 
now for 2017 to 2022 offers us a great opportunity to build 
upon the success, I believe, of the Gulf of Mexico Energy 
Security Act, GOMESA, an important and essential law that was 
passed in 2006 by working with both Republicans and Democrats, 
both Senate and House, led by Senator Domenici and myself.
    GOMESA was the first bill passed in a long time, and 
possibly forever, to open up 8.3 million acres of the Gulf to 
oil and gas exploration since the original plan. It was the 
first time Congress had ever opened up so many acres to new 
exploration. This area would soon produce up to 2 million 
additional barrels of oil per day. That's more than 10 percent 
of what the United States consumes and more oil than we import 
from Saudi Arabia.
    It is clear from this example that good things can happen 
when we open up more areas for drilling in a responsible 
manner. We can and should do even more, in my view, in a 
balanced and environmentally thoughtful way. To start we should 
complete an updated resources assessment of the entire OCS, 
particularly the areas off the East Coast.
    Since 1990 our proven reserves have multiplied dramatically 
each time the government completes a survey. Swift new advances 
in drilling technology are making more of what we find easier 
to extract. More drilling means more energy and more high 
paying jobs, more security, more reliability and a stronger 
economy. We need to act and turn this promising potential into 
a reality, in my view.
    Having these potential resources beneath our waters and not 
using them is short sighted. It makes us more dependent on 
countries that are unstable or countries that do not share our 
values. The next 5 year plan must open up more areas for energy 
production off of our coast.
    One way to ensure that we can responsibly develop more of 
our offshore resources is to make the permitting process as 
efficient as possible. Unnecessary regulations drive innovators 
out of the market and prevent us from creating more high 
paying, energy jobs. Inefficient regulations and lack of 
certainty add additional cost and time into the permitting 
process in the Gulf compared to other areas of the world.
    Since capital will flow to the areas that have the most 
promise, it's important, in my view, for the U.S. OCS to be one 
of the more promising areas and particularly the traditional 
OCS which is the Gulf of Mexico. Delays cause many companies to 
move production assets to other parts of the world like Asia 
and Africa. As a Louisiana Senator, of course, I want to keep 
as many jobs here in Louisiana, in the Gulf Coast area and in 
the United States as possible.
    North America can be a power house. An energy secure and 
independent North America is something worth fighting for, 
working for and working across parties lines to achieve, 
particularly in light of the current turmoil in Iraq, ongoing 
Russian aggression against the Ukraine and some of its other 
neighbors. It has never been more important or more possible.
    Considering the changes in the political landscape in a 
very positive way in Mexico, and Canada's continued advancement 
of their technologies, both on the energy side and the 
environmental side , it is really, truly an exciting time for 
us in this industry and in this particular geographic space.
    For a coastal State like Louisiana, to produce more energy 
offshore, we must build on the revenue sharing partnership that 
was established with Senator Domenici through GOMESA in 2006. 
Before this law was passed, as everyone knows, Gulf Coast 
States played host to energy production offshore and our 
States, Louisiana, Texas, Mississippi and Alabama, that were 
production host States, received virtually no share of the 
revenues from the Outer Continental Shelf which begins only 3 
miles off of our coast.
    Contrary to this situation and great irritation to me and 
to others, the Federal Government shared 50 percent of those 
same revenues on Federal lands in interior States. Rentals, 
royalties, bonus bids were sent to the Federal Government and 
one half were left in States like Wyoming, New Mexico, Utah, 
etcetera, while 100 percent of the Gulf Coast OCS revenues were 
taken and deposited into the general fund of the United States. 
Now we changed that with GOMESA.
    The Gulf has already received $31,000,000 from this law. In 
2017 under the current law, these 4 States will receive up to 
$50,000,000 to be divided among ourselves. But without lifting 
the revenue sharing cap, we will not be in the same situation 
as the interior States which, I believe, is an equality issue 
that we need to work on.
    That's why I'm committed to passing the FAIR Act. This 
committee will consider that Act very shortly. I co-sponsored 
this legislation with Senator Lisa Murkowski of Alaska. This 
bill would accelerate revenue sharing payments to the State the 
year of its enactment and lift the arbitrary cap of $500 
million placed on the Gulf Coast States, a cap that does not 
exist for any other State or any other region of the country.
    Allowing coastal States to share in the same or an 
equitable percentage, whatever Congress would believe, as the 
interior States would be fair. In my opinion 50 percent would 
be equitable. But we are open to the discussion. GOMESA is 37 
and a half percent.
    We can then use those revenues to keep America's working 
coast, America's energy coast, strong and vibrant. More of that 
revenue sharing would mean more lands preserved and more 
wildlife refuges made stronger. It could also help us to stem 
the tide of erosion along our coast and could be used for 
appropriate energy related infrastructure and development.
    More offshore energy exploration and production means more 
high paying jobs for hard working families that pay the kind of 
wages that allow our middle class to grow, to buy homes, to 
save for the future and to build wealth. It means achieving 
energy security for the United States, something that has 
bedeviled the Members of Congress and Presidents for decades.
    So today's hearing is about what we need to do to make this 
a reality.
    Today's hearing is about what promise does the OCS hold.
    What are the resources?
    What is the government's plan to develop these resources?
    You can see the small chart here that outlines the planning 
areas. Of course, there's limited capital. There's limited 
infrastructure. So we have to have a plan that directs 
resources to a certain area.
    If it were all open which, you know, we could think about 
as well, it would be interesting to see what areas would 
receive the first interest from the industry. But clearly 
there's more land, more leases that can be opened. You know, 
there are different views about this. We'll hear some of those 
today.
    But I'm happy to conduct this field hearing on behalf of 
the Energy and Natural Resources Committee to hear from the 
people on the ground here in Acadiana at the center of 
America's energy coast.
    There will be, clearly, field hearings held in other parts 
of the country. There will be different kinds of testimony 
presented. But I believe it's important as we develop this 5 
year plan to get a variety of different impacts starting with 
the region that does the most drilling, and supports the most 
production in the Outer Continental Shelf.
    It is clear to me that the first hearing on the next 5 year 
plan should be right here in Lafayette, in South Louisiana 
which is the center of Gulf Coast production. I believe that my 
Texas and Alabama and Mississippi Senators would agree with 
that. Louisiana is looked on, particularly, Lafayette and this 
Lake Charles area, as sort of the working coast, the center of 
all support services for the offshore. We have most of the 
energy ports in the Gulf Coast.For these reasons, this is a 
perfect place to hold this hearing.
    So at this time if Dr. Cruickshank and Mr. Sieminski would 
come forward to begin your testimony. As you know we've 
received it. We've reviewed it. You each have 5 minutes to 
testify.
    We'll start with Dr. Cruickshank first and then go to Mr. 
Sieminski.
    You'll be notified when you have 30 seconds to wrap up. 
Then I'll introduce the second panel.
    Dr. Cruickshank, thank you very much. You're always 
welcome. You've been before our committee many times before. I 
understand you've been in the government service for almost or 
maybe 30 years. So we're happy to have you testify as a 
knowledgeable leader in our government.
    Welcome.

  STATEMENT OF WALTER CRUICKSHANK, ACTING DIRECTOR, BUREAU OF 
      OCEAN ENERGY MANAGEMENT, DEPARTMENT OF THE INTERIOR

    Mr. Cruickshank. Chair Landrieu, I am pleased to appear 
before you today to discuss a number of important issues 
including the current 5 year Outer Continental Shelf Oil and 
Gas Leasing Program, the United States/Mexico Trans boundary 
Hydrocarbon Agreement and development of the next 5 year oil 
and gas leasing program.
    The Bureau of Ocean Energy Management provides for the 
environmentally and economically responsible management of the 
Nation's energy and mineral resources on the Outer Continental 
Shelf. One of the primary means for doing so is the 5-year oil 
and gas leasing program. The current 5 year program for 2012 to 
2017 schedules 15 proposed lease sales and 6 planning areas 
that include more than 75 percent of the estimated, 
undiscovered, technically recoverable oil and gas resources in 
Federal offshore waters.
    To date, BOEM has conducted 5 lease sales, 2 in the Western 
Gulf of Mexico planning area, 2 in the Central Gulf of Mexico 
and one in that portion of the Eastern Gulf, not subject to 
moratorium under the Gulf of Mexico Energy Security Act.
    These sales resulted in leasing approximately 4.3 million 
acres for a total of nearly $2.3 billion in bonus bids. The 
next sale in the 5-year program is in the Western Gulf of 
Mexico scheduled for next month. Six other lease sales are 
scheduled for the Gulf of Mexico through the end of the 5-year 
program and 3 lease sales are scheduled offshore Alaska, one 
each in portions of the Chukchi Sea, Beaufort Sea and Cook 
Inlet planning areas. The 5-year program adopted a targeted 
leasing strategy in the Arctic to focus leasing on the most 
promising blocks while protecting important Arctic habitats and 
critical subsistence activities.
    In the mid and south Atlantic BOEM is currently pursuing a 
strategy to develop modern, scientific information about the 
scope and location of potential oil and gas resources and to 
resolve significant potential conflicts between oil and gas 
activity and other important uses of Federal waters. A record 
of decision that sets a framework for appropriate geological 
and geophysical survey activities off the mid and south 
Atlantic coast and that clears the way for G and G permits to 
be considered is expected to be issued in the coming weeks. 
Information gained from this data will help inform BOEM's 
decisions regarding potential future leasing along the Atlantic 
coast.
    Turning to the United States Mexico Trans Boundary 
Hydrocarbon Agreement.
    This agreement was signed into law in December of last year 
creating a new level of certainty for U.S. and Mexico firms 
operating in the Gulf Offshore Boundary region and making 
additional areas accessible for safe and responsible 
exploration and production activities. The Trans Boundary 
Agreement sets clear guidelines for the development of oil and 
natural gas reservoirs that cross the maritime boundary. Under 
the agreement U.S. and Mexican operators will be able to 
voluntarily enter into agreements to jointly develop these 
reservoirs.
    In the event the companies can't agree the Trans Boundary 
Agreement establishes a process through which U.S. and Mexican 
operators can individually develop the resources on each side 
of the border while protecting each Nation's interests and 
resources.
    The Trans Boundary Agreement enters into force on July 18th 
at which time the leasing moratorium on blocks within the 1.4 
nautical mile buffer area, north of the boundary in the Western 
Gap expires and those blocks will be available for leasing.
    With the current 5 year program expiring in August 2017 
BOEM recently announced the first step in a robust public 
engagement and analytical process to develop the next 5 year 
program for 2017 to 2022. The OCS Lands Act requires the 
Secretary of the Interior to prepare and maintain a schedule of 
proposed oil and gas lease sales in Federal waters indicating 
the size, timing and location of sales that would best meet 
national energy needs while achieving the appropriate balance 
among the potential for environmental impacts for discovery of 
oil and gas and for adverse effects on the coastal zone.
    Last month BOEM took the first step in the development of 
the next 5 year program with the publication of a request for 
information and comments.
    The RFI, as it is known, is the initial step in a 2 and a 
half to 3 year planning process. It does not identify any 
specific course of action. Consistent with past practice and 
judicial guidance BOEM will evaluate all 26 OCS planning areas 
during this first planning stage.
    The RFI provides an opportunity for interested parties to 
submit comments and suggestions about the potential for leasing 
and to identify environmental and other concerns and uses that 
may be affected by offshore leasing.
    The RFI's public comment period ends on July 31st.
    Using the information received in response to the RFI BOEM 
will prepare successive decision documents describing a draft 
proposed program followed by a proposed program and a proposed 
final program. Throughout the planning process BOEM will 
consult with all interested parties and seek additional public 
comment. Concurrently BOEM will prepare a programmatic 
environmental impact statement to evaluate the potential 
environmental impacts of various OCS oil and gas leasing 
alternatives and to help inform decisions on the proposed final 
program.
    Chair Landrieu, thank you again for inviting me to appear 
today. I look forward to working with the committee, especially 
as we proceed with development of the next 5 year program. I 
will be happy to answer any questions you may have.
    [The prepared statement of Mr. Cruickshank follows:]
 Prepared Statement of Walter Cruickshank, Acting Director, Bureau of 
          Ocean Energy Management, Department of the Interior
    Chair Landrieu and Members of the Committee, I am pleased to appear 
before you today to discuss a number of important issues including, the 
current 2012--2017 Five Year Oil and Gas Leasing Program, the United 
States--Mexico Transboundary Hydrocarbon Agreement, and development of 
the next Five Year Oil and Gas Leasing Program for 2017--2022.
2012--2017 Five Year Oil and Gas Leasing Program
    The 2012--2017 Five Year Oil and Gas Leasing Program (2012--2017 
Five Year Program) became effective in August 2012, and schedules lease 
sales in six planning areas with the greatest resource potential, 
including more than 75 percent of the estimated undiscovered, 
technically recoverable oil and gas resources on the Outer Continental 
Shelf (OCS) comprising nearly 219 million acres in 15 proposed lease 
sales.
    To date, the Bureau of Ocean Energy Management (BOEM) has conducted 
five lease sales--two in the Western Gulf of Mexico Planning Area, two 
in the Central Gulf of Mexico Planning Area, and one in the portion of 
the Eastern Gulf of Mexico Planning Area not subject to moratorium 
under the Gulf of Mexico Energy Security Act. Under the current Five 
Year Program, approximately 4.3 million acres, including 794 tracts, 
have been leased for a total of nearly $2.3 billion in bonus bids. The 
next sale in the Five Year Program is Lease Sale 238 in the Western 
Gulf of Mexico Planning Area scheduled for August 2014. Six other lease 
sales are scheduled for the Western, Central and Eastern Gulf of Mexico 
Planning Areas, and three lease sales are scheduled offshore Alaska, 
one each in portions of the Chukchi Sea, Beaufort Sea, and Cook Inlet 
Planning Areas.
    The 2012--2017 Five Year Program adopted a targeted leasing 
strategy in the Arctic to focus oil and gas leasing on the most 
promising blocks, while protecting important Arctic habitats and 
critical subsistence activities. The strategy, which includes 
consultations with Alaska Natives, the State, other Federal agencies, 
and other stakeholders, identifies areas considered for leasing that 
have high resource potential and clear indications of industry interest 
while appropriately weighing environmental protection and subsistence 
use needs.
    BOEM is currently pursuing a specific strategy to develop modern, 
robust scientific information about the scope and location of potential 
oil and gas resources in the Mid and South Atlantic and to resolve 
significant potential conflicts between oil and gas activity and other 
important OCS uses in these areas, including military, fishing, and 
vessel traffic uses as well as environmental and infrastructure 
concerns. A Record of Decision that sets a framework for appropriate 
geological and geophysical (G&G) survey activities off the Mid- and 
South Atlantic coast and clears the way for G&G permits to be 
considered, is expected to be issued in the coming weeks. Information 
gained from this G&G data gathering will help inform BOEM's decisions 
regarding potential future leasing along the Atlantic coast.
United States--Mexico Transboundary Hydrocarbon Agreement
    Earlier this year, BOEM issued three leases in the Western Planning 
Area of the Gulf of Mexico, along the United States--Mexico Maritime 
Boundary. The three bids were opened during the Eastern and Central 
Gulf of Mexico Planning Area lease sales held on March 19, 2014. The 
three bids totaled over $21 million and were submitted by Exxon Mobil 
Corporation.
    The United States--Mexico Transboundary Hydrocarbon Agreement 
(Transboundary Agreement), signed into law on December 26, 2013, 
creates a new level of certainty for U.S. and Mexican firms operating 
in the Gulf offshore boundary region and makes additional areas 
accessible for exploration and production activities. The Transboundary 
Agreement sets clear guidelines for the development of oil and natural 
gas reservoirs that cross the maritime boundary. Under the Agreement, 
U.S. and Mexico's operators will be able to voluntarily enter into 
agreements to jointly develop those reservoirs. In the event that 
consensus cannot be reached, the Transboundary Agreement establishes 
the process through which U.S. and Mexico's operators can individually 
develop the resources on each side of the border while protecting each 
nation's interests and resources.
    The Transboundary Agreement allows leaseholders on the U.S. side of 
the maritime boundary to cooperate with Mexico's operators, in the 
joint exploration and safe and responsible development of hydrocarbon 
resources. The Agreement also provides for joint inspection teams from 
the Bureau of Safety and Environmental Enforcement (BSEE) and the 
Mexican Government to ensure compliance with applicable laws and 
regulations. Relevant agencies in both countries will review plans for 
the development of these reservoirs, and additional requirements may be 
set before development activities are allowed to begin.
    This agreement makes the entire transboundary region, which was 
subject to legal uncertainty in the absence of an agreement, more 
attractive to U.S.-qualified operators. BOEM estimates that the 
transboundary area contains as much as 172 million barrels of oil and 
304 billion cubic feet of natural gas.
    With entry into force of the Transboundary Agreement on July 18, 
the leasing moratoria on blocks within the 1.4 nautical mile buffer 
area north of the Continental Shelf boundary in the Western Gap 
expires, and those blocks will be available for leasing.
2017--2022 Five Year Oil and Gas Leasing Program
    With the current Five Year Program expiring in August 2017, BOEM 
recently announced the first step in a robust public engagement and 
analytical process to develop the next schedule of potential offshore 
oil and gas lease sales.
    The OCS Lands Act requires the Secretary of the Interior, through 
BOEM, to prepare and maintain a schedule of proposed oil and gas lease 
sales in Federal waters, indicating the size, timing and location of 
sales that would best meet national energy needs while achieving an 
appropriate balance among the potential for environmental impacts, for 
discovery of oil and gas, and for adverse effects on the coastal zone.
    Last month, BOEM took the first step in the development of the next 
Five Year Program with the publication of a Request for Information and 
Comments on the Preparation of the 2017-2022 Outer Continental Shelf 
Oil and Gas Leasing Program (RFI). The RFI is the initial step in a 
two-and-a-half to three-year planning process and does not identify any 
specific course of action. Per statute and consistent with previous 
efforts and judicial guidance, BOEM will evaluate all 26 OCS planning 
areas during this first stage. The publication of the RFI begins a 45-
day comment period ending on July 31, 2014. The RFI provides an 
opportunity for interested parties to submit comments and suggestions 
about the potential for leasing and to identify environmental and other 
concerns and uses that may be affected by offshore leasing. BOEM seeks 
a wide array of input, including information on the economic, social 
and environmental values of all OCS resources, as well as the potential 
impact of oil and gas exploration and development on other resource 
values of the OCS and the marine, coastal and human environments.
    Substantial public involvement and extensive analysis will 
accompany all stages of the planning process. BOEM is reaching out to a 
broad array of stakeholders, including State governments, coastal 
organizations, and tribal representatives to educate them on BOEM's 
programs, policies and procedures, as well as working with the 
Department of Defense (DOD) to resolve potential conflicts between the 
OCS leasing program and DOD requirements to use the OCS for national 
defense and security. BOEM is holding meetings with coastal States if 
requested; BOEM has met with the State of North Carolina and is 
scheduled to meet with the Commonwealth of Virginia in early July. 
Additionally, in response to coastal state requests and in order to 
enable States to prepare a robust response to the RFI, BOEM is hosting 
a meeting in its Gulf of Mexico Region office in New Orleans on July 
16-17 to share comprehensive information on BOEM's, as well as the 
Bureau of Safety Environmental Enforcement's, programs from oil and gas 
leasing to decommissioning activities.
    Using the information received in response to the RFI, BOEM will 
prepare decision documents describing the Draft Proposed Program, 
followed by a Proposed Program and a Proposed Final Program. Throughout 
the planning process, BOEM consults with all interested parties and 
seeks additional public comment on the Draft Proposed and Proposed 
Programs. Concurrently, BOEM will prepare a Programmatic Environmental 
Impact Statement (PEIS) required by the National Environmental Policy 
Act to evaluate the potential environmental impacts of various OCS oil 
and gas leasing alternatives under the Proposed Program and to help 
inform decisions on the Proposed Final Program.
Permitting and Production
    The aforementioned BOEM activities have the potential to increase 
exploration, drilling, and production on the OCS. I have been asked to 
mention a few significant efforts by our sister agency, the Bureau of 
Safety and Environmental Enforcement (BSEE). To further enhance safety 
and environmental protection across offshore operations, BSEE has 
initiated a variety of regulatory improvements to address key safety 
issues. As BSEE continues to evaluate possible regulatory updates, for 
topics such as well control processes and technologies, crane safety 
and oil spill response and preparedness, the bureau has also worked to 
streamline the regulatory process to improve efficiency, provide for 
more stakeholder input, and keep pace with industry as offshore 
activity and production increases.
    Over the past few years BSEE's permit review times have decreased, 
without sacrificing human safety and protection of the environment. For 
example, BSEE achieved an average review time of 59 days for deepwater 
New Well permits submitted and approved in 2013, down from 71 days in 
2011. BSEE has focused on reducing risks offshore by thoroughly 
reviewing each permitted activity on a case-by-case basis that is 
consistent with the level of risk that each activity carries.
    BSEE's continued improvements in predictability and consistency in 
permitting are evidenced by the record number of rigs currently 
drilling in deepwater in the Gulf of Mexico (GOM) and the ongoing work 
for 8 new floating platforms in the GOM that are expected to add up to 
700,000 barrels of oil per day capacity in 2014 through 2016. 
Additional discoveries under evaluation for development in the 
deepwater GOM could facilitate development of an additional 700,000 
barrels of oil per day capacity by 2020. The Energy Information 
Administration forecasts oil production from the GOM to increase to 
nearly 2 million barrels per day by 2016.
    Industry continues to view GOM deepwater as a major development 
target, and BSEE continues to heighten safety standards to address the 
challenges of operating in these areas. The GOM has recently seen a 
historic number of deepwater Mobile Offshore Drilling Units (MODUs) 
that are either working or are under contract preparing to start work. 
As a point of reference there were approximately 35 deepwater MODUs in 
April of 2010 (about 9 drillships and 26 semisubmersibles) and now 
there are 44 (26 drillships and 18 semisubmersibles) as of June 2014. 
New and revised deepwater rig contracts and BSEE interaction with 
industry on specific projects suggests that the number of deepwater 
MODUs in the GOM is expected to continue to increase through 2017. The 
number of deepwater MODUs is expected to vary within a range of 50 to 
60 floating drilling rigs depending on the timing of development 
projects coming on line, trends in future discoveries and movement of 
rigs in and out of the GOM as exploration and development activities 
increase globally.
    BSEE remains committed to its efforts to increase efficiency and 
transparency in its permitting process. For example, BSEE is developing 
an ePermitting system that should provide companies with additional 
information about permitting requirements, leading to increased 
predictability and transparency in the permitting process. The system 
should also allow BSEE personnel to more easily focus on proposed 
activities with higher risk levels, thus helping BSEE fulfill its 
mission of protecting both offshore workers and the environment.
Conclusion
    Chair Landrieu and Members of the Committee, thank you again for 
inviting me to appear before your Committee. I look forward to working 
with the Committee especially as we proceed with development of the new 
Five Year Program. I am happy to answer any questions.

    The Chair. Thank you very much.
    Mr. Sieminski.

STATEMENT OF ADAM SIEMINSKI, ADMINISTRATOR, ENERGY INFORMATION 
                         ADMINISTRATION

    Mr. Sieminski. Chair Landrieu, I had some slides but I 
think we'll just do it without those. They are up here, but----
    The Chair. Is it--we have a technical difficulty?
    Mr. Sieminski. No. I'm going to need somebody to----
    The Chair. No, please. We'd love to see them if you can get 
somebody to help you.
    Mr. Sieminski. Maybe we can have a volunteer?
    The Chair. Yes.
    Pat, you want to volunteer or T Brad? Who is sitting there?
    Or if you want to sit there you're welcome to.
    Mr. Sieminski. This will work. Maybe this is going to work.
    Here we go. High tech.
    The Chair. Go right ahead. I'm impressed.
    Mr. Sieminski. Chair Landrieu, it's a real pleasure. I 
appreciate the opportunity to be here today here in Lafayette.
    The Energy Information Administration, as you know, is the 
independent and impartial statistical and analytical agency 
within the U.S. Department of Energy. My views expressed here 
today should not be construed as representing those of the 
Department of Energy or any other Federal agency. My testimony 
focuses on the outlook for oil and natural gas development on 
the Outer Continental Shelf and draws on EIA's short term 
energy outlook and the 2014 Annual Energy Outlook which 
includes long term projections out to the year 2040.
    It is important to recognize that projections of energy 
markets are highly uncertain and subject to many unforeseeable 
events. The Annual Energy Outlook reference case represents an 
energy future based on given market, technological, demographic 
and other trends, current laws and regulations in consumer 
behavior. The complete 2014 version of the Annual Energy 
Outlook which we call the AEO was just released in May and it 
includes side cases with alternative assumptions regarding 
resources, technology advances and world energy prices that 
could significantly affect projections for oil and natural gas 
production.
    So just as an example. This slide shows that under the high 
oil price scenario projected lower 48 States offshore oil 
production in 2040 is almost 10 percent above the reference 
case.
    In the short term, EIA's forecast of annual average 
production from the Federal Gulf of Mexico increases from 1.3 
million barrels a day in 2013 to 1.7 million barrels a day in 
2015. At the same time due to relatively low natural gas prices 
the Gulf of Mexico gas production is forecast to decrease 
somewhat from 3.6 billion cubic feet a day to 3.2 bcf a day 
over the same period.
    Over the longer term under the AEO 2014 reference case and 
that's shown here in this slide. Oil production on Federal and 
State waters of the Gulf of Mexico varies between 1.3 billion 
barrels a day and 2 million barrels a day over the period out 
to 2040.
    Now slide four, that's this one shows natural gas 
production forecast to increase from about 5.2 bcf a day to 6.8 
bcf a day over the same period. Toward the end of the period 
the pace of exploration on production activity quickens 
associated predominately with discoveries in the deep water and 
ultra deep water portions of the Gulf of Mexico.
    Slide 5 shows new offshore oil production from the Alaskan 
North Slope partially offsetting the decline from onshore North 
Slope fields.
    For the high oil and gas resource case we assume more 
resources in Alaska and the lower 48 States offshore. This 
reflects more favorable resolution of uncertainty surrounding 
undeveloped areas where there has been little or no recent 
exploration.
    The low oil and gas resource case reflects only uncertainty 
around tight and shale crude oil and natural gas resources. All 
other resource assumptions in the high case are unchanged from 
the reference case.
    An important aspect of the Gulf of Mexico production is the 
quality of the crude oil. Recent and forecast increases in 
domestic crude production have sparked discussion on the topic 
of how rising crude oil volumes will be absorbed in the U.S. 
refining system. U.S. crude streams vary widely in quality and 
the economics for U.S. refiners to use additional domestic 
production are directly dependent on the quality of the crude 
oil.
    Slide 6 shows that EIA's analysis of current forecast crude 
production indicates that U.S. supply of lighter, API gravity 
crude will continue to outpace that of the medium and heavier 
grades. EIA expects that more than 60 percent of production 
growth for 2014 and 2015 will consist of sweet grades with API 
gravity of 40 degrees or above.
    By contrast the Gulf of Mexico crudes are medium, sour with 
an API gravity range of 27 to 35 degrees. These crudes are 
particularly favored by the sophisticated world class 
refineries along the Gulf Coast here.
    So one of the interesting things that you should see in 
that graph, that hatched red area to the bottom. There is some 
growth in there although the scale is a little hard to see. 
We're expecting quite a decent pick up of production of the API 
27 to 35 degree crudes, most of that coming from the Gulf of 
Mexico in 2015. That should actually help to alleviate some of 
the difficulties that refiners have been having access to the 
heavier domestic crudes.
    A key element of the survey that we have been thinking 
about, in fact EIA is currently working on a proposal that 
would expand one of our surveys that we think is going to be 
critical to ensuring timely and quality information on domestic 
oil and gas production. A key element of this survey is the 
inclusion of oil production by crude oil type or API gravity. 
We are working closely with the industry associations to ensure 
that this survey will be a success.
    This final figure, Senator, and I'll just wrap it up then, 
puts the offshore production situation into the context of 
total national oil production.
    Under EIA's reference case net oil import dependence which 
you see had been as high as 60 percent back in 2005 has 
declined very rapidly as production in onshore and offshore 
waters has increased.
    Under EIA's reference case net oil import dependence 
declines 25 percent in 2016.
    Under the high resource case net import dependence actually 
continues to decline as production rises and that's that, kind 
of, dotted blue line that you see there going up. At some point 
it is possible in the period after 2030 that the U.S. might 
actually be self sufficient in net oil imports.
    I'd like to thank you very much for the opportunity to 
testify here today. As Walter said, I'd be happy to answer any 
questions.
    [The prepared statement of Mr. Sieminski follows:]
Prepared Statement of Adam Sieminski, Administrator, Energy Information 
                  Administration, Department of Energy
    Chair Landrieu and Members of the Committee, I appreciate the 
opportunity to appear before you today.
    The Energy Information Administration (EIA) is the statistical and 
analytical agency within the U.S. Department of Energy. EIA collects, 
analyzes, and disseminates independent and impartial energy information 
to promote sound policymaking, efficient markets, and public 
understanding regarding energy and its interaction with the economy and 
the environment. EIA is the nation's premier source of energy 
information and, by law, its data, analyses, and forecasts are 
independent of approval by any other officer or employee of the United 
States Government. The views expressed herein should therefore not be 
construed as representing those of the Department of Energy or any 
other federal agency.
    As requested, my testimony focuses on the outlook for oil and 
natural gas development on the Outer Continental Shelf (OCS). My 
testimony draws on EIA's June Short Term Energy Outlook (STEO) and the 
2014 Annual Energy Outlook (AEO2014) which includes long-term 
projections through 2040. EIA released the Reference case projections 
for the AEO2014 in December. The Reference case is intended to 
represent an energy future through 2040 based on given market, 
technological, and demographic trends; current laws and regulations; 
and consumer behavior. EIA recognizes that projections of energy 
markets are highly uncertain and subject to geopolitical disruptions, 
technological breakthroughs, economic fluctuations, and other 
unforeseeable events. In addition, long-term trends in technology 
development, demographics, economic growth, and energy resources may 
evolve along a different path than represented in the Reference case 
projections.
    The complete AEO2014, which was released in May, includes 
alternative assumptions regarding resources, technology advances, and 
world energy prices that can significantly affect projections for oil 
and natural gas production. The impact of alternative assumptions in 
these two areas were explored in AEO2014 side cases that address high 
and low oil price scenarios and more optimistic and pessimistic 
assumptions regarding the resource base and the pace of technology 
advances. The impacts of the revised assumptions in the alternative 
scenarios can be substantial. For example, projected offshore oil 
production in 2040 is roughly 10 percent above the Reference case level 
in the High Oil Price scenario (*Figure 1).
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    In the June STEO, based on forecasts of annual average production 
from 2013 to 2015, the federal Gulf of Mexico oil production increases 
from 1.3 million bbl/d to 1.7 million bbl/d. Natural gas production is 
forecast to decrease from 3.6 Bcf/d to 3.2 Bcf/d over the same period 
because natural gas prices remain low relative to oil prices.
    Looking at the longer-term picture, in the AEO2014 reference case, 
Gulf of Mexico (federal and state) oil production varies between 1.3 
million bbl/d and 2.0 million bbl/d over the projection period, 2013-
2040 (Figure 2). Natural gas production in the Gulf of Mexico is 
forecast to increase from 1.9 Tcf (5.2 Bcf/d) to 2.5 Tcf (6.8 Bcf/d) 
over the same period (Figure 3). Toward the end of the period, the pace 
of exploration and production activity quickens, and new large 
development projects, associated predominantly with discoveries in the 
deepwater and ultra-deepwater portions of the Gulf of Mexico, are 
brought on stream. New offshore oil production from the Alaska North 
Slope partially offsets the decline in production from onshore North 
Slope fields, as shown in Figure 4.
    For the High Oil and Gas Resource case, we assumed that there are 
more resources in Alaska and in the lower 48 offshore, including the 
development of tight oil in Alaska and 50 percent higher technically 
recoverable undiscovered resources for other Alaska crude oil and the 
lower 48 offshore (which reflects more favorable resolution of the 
uncertainty surrounding undeveloped areas where there has been little 
or no exploration and development activity, and where modern seismic 
survey data are lacking).
    The Low Oil and Gas Resource case reflects only the uncertainty 
around tight and shale crude oil and natural gas resources-
specifically, whether the performance of current and future wells 
drilled will actually be less than estimated. All other resource 
assumptions are unchanged from the Reference case.
    Another aspect of Gulf of Mexico production that I would like to 
highlight relates to the quality of the crude. Recent and forecast 
increases in domestic crude production have sparked discussion on the 
topic of how rising crude oil volumes will be absorbed. EIA recently 
released a short-term forecast of domestic production by crude type, 
supplementing the May 2014 overall production forecast provided in the 
STEO. Forecasts of production by crude type matter for several reasons. 
First, U.S. crude streams vary widely in quality. Second, the economics 
surrounding various options for the domestic use of additional domestic 
oil production are directly dependent on crude quality characteristics. 
EIA analysis of current and forecast crude oil production indicates 
that U.S. supply of lighter API gravity crude will continue to outpace 
that of medium and heavier crudes (Figure 5). More than 60 percent of 
EIA's forecast of production growth for 2014 and 2015 consists of sweet 
grades with API gravity of 40 or above. The type of heavier crude from 
the OCS, in particular, the Gulf of Mexico, however, is particularly 
favored by refineries in the Gulf Coast. Gulf of Mexico oil production 
is understood to be API gravity range of 27-35 degrees, and is medium 
sour. Alaska crude, on and offshore, is in the same API gravity range.
    I would like to mention EIA's pending proposal to expand one of our 
important production surveys. The quality and timeliness of well-level 
data on production by crude type used to develop the estimates vary 
widely across states. As part of its continuing effort to improve data 
on oil and natural gas production, EIA is now seeking public comment on 
a plan to expand its current collection of monthly natural gas 
production data in six states to include both oil and natural gas 
production in 19 states plus the Gulf of Mexico. The proposed data 
collection, which EIA plans to launch in 2015, would provide 
information on production by crude type. Updated estimates of regional 
production by crude type will also be needed as new plays start 
commercial development, because production from new plays will change 
the distribution of production by crude types in the regions where 
those plays are located.
    Finally, to put the offshore development into the national energy 
context, my last slide shows that under EIA's reference case, net oil 
import dependence declines from a high of 60 percent in 2005 to 25 
percent in 2016 (Figure 6). Under the high resource case, net import 
dependence declines rapidly and could approach net oil self-sufficiency 
in the period after 2030.

    The Chair. Thanks. I just want to make sure that last 
sentence was in 2030 the U.S. will be completely free of the 
necessity for imports?
    Mr. Sieminski. We would have its net imports, Senator.
    The Chair. OK.
    Mr. Sieminski. So we would still be importing oil.
    There are a number of places in the East Coast, the West 
Coast and even here along the Gulf Coast where it would still 
make sense to bring in a particular grade of crude oil to be 
run through the refineries here. But if you add all of the 
production up, take away the imports. We might actually have 
more production than we do imports on a net basis.
    The Chair. OK, which would provide an opportunity for 
export either than or before depending on----
    Mr. Sieminski. Yes. That's exactly correct.
    The Chair. Yes, that's what this information will help us.
    Let me begin with just a few questions.
    This is a little confusing to me. Maybe it will be to those 
listening. Your testimony currently States that we're producing 
1.3 million barrels of oil a day in the OCS. In 2 years you 
expect it to go to 1.7 million which is a 300,000 barrel 
increase in 3 years.
    The next paragraph says--that's the short run.
    The next paragraph says in the long run which is from 2017 
to 2040, you were estimating the same increase over that period 
of time which is 23 years as you are in the next 2. Why is 
that?
    Are you standing on those projections?
    What are some of your underlining assumptions that would 
make that projection so conservative?
    Mr. Sieminski. Senator, recent wells drilled in the Gulf of 
Mexico have exhibited a relatively low gas to oil ratio and 
that tends to keep our gas number down. The oil production 
itself, some of the drilling is going to have to offset natural 
declines that take place in the existing wells. So we may 
actually have more new production coming on than you get in the 
total number because you've got to offset the declines in the 
wells.
    It is worth noting that the numbers that I mentioned 
excludes State waters. State waters would add for natural gas, 
for example, another 1.5.
    The Chair. But I just want to stay for oil. Let's just talk 
about oil.
    Mr. Sieminski. Just oil.
    The Chair. Just oil. No gas.
    Mr. Sieminski. Right.
    The Chair. I just want to keep--I want to compare apples to 
apples.
    Mr. Sieminski. Then we'll just----
    The Chair. So in your testimony, now I'm going to press 
this with you. In your testimony you say that in the next 2 
years the amount of oil is going to increase in 2 years by 
300,000 barrels a day.
    Then you project that over the next 23 years it will only 
increase by 300,000 over that period.
    That just seems--it just doesn't seem plausible.
    Mr. Sieminski. Our geologists look at the resource base. 
They look at what land is available for leasing. They look at 
the activity of the industry in picking up those leases. They 
try to make assumptions about the price of oil, the technology 
and so on. The numbers that they come up with suggest that it 
is going to be hard to grow the Gulf of Mexico oil base in the 
same manner that we seem to be capable of growing it onshore at 
this time.
    So there's 2 other things that I would mention that could 
change. That's the technology. The increased application, just 
as an example of hydraulic fracturing in the offshore similar 
to what we're doing onshore might make those projections very 
different.
    Another possibility and as Dr. Cruickshank mentioned, 
policy issues such as agreements with Mexico or even Cuba that 
could open up more U.S. boundary waters for development and 
would add to the acreage available for exploration.
    The Chair. I'm going to actually ask the staff to draft a 
question to the committee. We don't have it for right now. What 
are the four largest investors in the Gulf of Mexico in the 
deep water and if they would share, if it's not proprietary, 
their projections of the same timeframe. What they are 
projecting?
    Because I want to understand if there is a delta between 
what the government is projecting in oil production in the Gulf 
from the 3 to 4 major operators that have a lot of private 
capital to risk. We don't risk private capital. We risk other 
things, but not private capital, the government does.
    But my indication is that the operators are feeling 
bullish. So I'm having a hard time understanding why they would 
be so bullish if there's nothing to find. I'm going to have to 
resolve that. I can't do that today. But it seems like a very--
--
    The Chair. Then my second question and I will send in 
writing to you is this one.
    You're projecting 23 years from 2017 forward. I want you to 
go back 23 years and find the government data that projected 
how much oil would be produced this, today, in the Gulf 23 
years ago. I want to see how accurate you were then.
    Because I think you're going to be wildly off. I'm trying 
to get to the bottom of why the government projections are so 
wildly off of what is the actual. I'm just seeing this decade 
after decade after decade.
    I've got to figure out what information you all are looking 
at than other people are looking at. But we'll see. Maybe 23 
years ago you projected that we would be generating, this very 
close, to the amount of oil that we're projecting. I doubt that 
would be the case.
    I know it's difficult to, but it's not impossible. It's 
difficult, but not impossible to get accurate estimates because 
we need them. We need to know how many refineries to build. We 
need to know, you know, what kind of refineries to build. We 
need to know what kind of oil we can export. We've got to have 
it very accurate.
    The Chair. The other question I wanted to ask you is on 
what technological basis do you decide if there's oil or gas 
there if you don't to seismic? Or maybe I should put it this 
way, what are the new technologies that the government uses 
either by itself of with the private sector that allow you to 
actually know what the resource base is? Is number one.
    No. 2. Can you make an accurate projection of the resource 
base without testing or doing seismic? I'm going to ask the 
industry the same question.
    Mr. Sieminski. Right. On that question, Senator, I'd say 
that asking that of the folks at the US Geologic Survey and 
some of the industry people might be a good idea.
    I can tell you that when EIA looks at it we try to do 
something similar to what other geologists do and that is look 
at the amount of rock that's available for production and 
compare that with what recovery rates have been from that 
resource base and use that as a methodology to project 
production going out into the future. It's subject to lots of 
problems. The main one is you have a very, very hard time 
dealing with changes in technology such as 3D seismic, 
horizontal drilling, hydraulic fracturing, stages, multi stage 
hydraulic fracturing and so on. All of which have tremendously 
boosted oil production projections, actual production and 
projections of those--that production in the onshore area.
    The other big unknown is the price of oil and what the 
price of oil was at port in terms of industry activity. So we 
do the best that we can with the tools that we have available. 
I certainly wouldn't want to claim here that our reference case 
forecast for the year 2040 is going to be absolutely correct.
    One of the things that I'll close on this comment, Senator, 
for this question is that that doesn't mean that reference case 
projections are not valuable. One of the things that you can do 
with a reference case projection and then you very clearly 
state what the assumptions are and you have those assumptions 
very transparent so that others can look at them and test the 
assumptions as you can go on side cases so we can look at a 
higher oil or a lower oil price case.
    We can look at what better economic or worse economic case 
and other potential changes like that or even policy changes. 
When you have that reference case to run those against it leads 
to, I think, a little bit better view of what might be 
possible.
    The Chair. But just to follow on just for a minute and then 
go to Mr. Cruickshank.
    In the Gulf you can look at the East Gulf, the Central Gulf 
and the Western Gulf. You know, there have been, I think, 
40,000 wells drilled in the Gulf of Mexico, roughly. But I 
can't remember exactly how many shallow or deep.
    But I remember this from the Mercado well blew up and I had 
to go on the Floor and talk about how they had safely drilled 
about 40,000 and sometimes bad accidents will happen like that, 
which we hope to always avoid. But there's a lot of activity in 
the Gulf.
    Do you know how many wells have ever been drilled in the 
Mid Atlantic offshore? I don't think any.
    Do you know how much seismic has been done either in the 
South Atlantic, the Mid Atlantic or the North Atlantic?
    Mr. Sieminski. But I think you're right. I think it's 
pretty limited.
    The Chair. Mr. Cruickshank, can you answer that question?
    Mr. Cruickshank. Yes, Senator.
    There have been--I'm going to have to get the exact number. 
They have been in the order of 35 to 40 wells drilled in the 
Atlantic.
    The Chair. Thirty-five and 40. There have been 40,000 in 
the Gulf. So just as a comparison, only 30 to 40 in the 
Atlantic.
    How many in the Pacific? Do you know?
    Mr. Cruickshank. In the Pacific there's ongoing production 
offshore, southern California.
    The Chair. So do we know how much out of how many wells? 
It's only a handful, like 20 or 30 or something like that.
    Mr. Cruickshank. There are 23 producing platforms.
    The Chair. Only 23 producing platforms.
    Do we know how many producing platforms we have in the 
Gulf?
    Mr. Cruickshank. I don't know the number off the top of my 
head. I think it's on the order of 3,000 to 3,500, something 
like that.
    The Chair. It's just so important for the country just to 
understand the relative nature of this.
    Fourty thousand wells drilled in the Gulf.
    Three thousand producing platforms in the Gulf.
    Twenty-five wells or so much in the whole Pacific and 23 
producing platforms in the Atlantic.
    There's one energy coast. That would be our coast. The 
others are other kinds of coast. They're not the energy coast.
    So what we find in the Gulf, which is the important thing, 
I think, to know about is the more we look, we find. The more 
we drill the more resources we get. The more resources we get 
the richer all the people of our country become.
    If it's conducted correctly it can be just a tremendously 
positive impact to the--I mean to the economy. You know, not 
harmful to the environment if it's done in the correct way.
    So I'm going to be pursuing because it's very interesting 
to me when people say they think they know how much oil and gas 
is out there. I always want to say, well how would you know it?
    [Laughter.]
    The Chair. I don't know. Maybe the industry can help us 
figure that out.
    But let me go on because we've got to move to our second 
panel.
    Mr. Cruickshank, regarding BOEM's pursuit of scientific 
information about the scope and location of potential oil and 
gas, what is your timeframe for obtaining this information for 
the Mid and South Atlantic?
    What steps will BOEM carry out during this timeframe?
    How do you collect information about the Mid and South 
Atlantic, kind of following up on what we're saying because 
you've got to put the next 5 year plan together.
    What are you looking for to try to get the information for 
the Mid and South Atlantic?
    Mr. Cruickshank. To start with there are the geologic and 
geophysical surveys. We expect to issue the record of decision 
on the programmatic EIS that we published recently. That record 
of decision should come out in the coming weeks.
    At that point of the companies that have applied for G and 
G permits will be able to pursue those permits. They will need 
to get authorizations under the Marine Mammal Protection Act 
from NOAA as well as our permits. But we're hoping that by the 
end of the year, early 2015, the companies can be out there 
collecting seismic information.
    That information is available to us at basically, at the 
cost of production as part of the terms of the permit. We will 
use that information in our future decisionmaking.
    The Chair. OK.
    Getting back to the Gulf of Mexico. Our operators here tell 
me consistently, repeatedly, that costs have gone up 
significantly since the Deep Water Horizon Mercando event in 
2010. As you know, unnecessary regulatory costs can contribute 
to fewer wells being drilled, fewer royalty payments to the 
Federal Government which should be of some concern, as well as 
a decrease energy supply for the Nation.
    Now appropriate regulation is always, actually, welcomed. 
It's a good thing. But do you have an estimate based on pre 
Mercando and post Mercando?
    What increases have--what do you acknowledge that increase 
to be? What is the official understanding of the Department? Is 
it a 5-percent increase in drilling costs? A 10-percent? 20 
percent or north of 20 or 25?
    Mr. Cruickshank. That is something actually that our sister 
agency, the Bureau of Safety and Environmental Enforcement 
would be more likely to know. So I like to refer the question 
to them and we'll get back to you.
    The Chair. Because between the two of you all understanding 
what those costs are are important because that has got to be 
figured into your assumption whether people are going to be 
drilling or not. So I think it's important for both of your 
agencies to know that as well as for us.
    We'll direct the question appropriately, but we'd ask you 
to get that information as well.
    The Chair. Let me ask Mr. Sieminski this.
    Regarding your assessment due to the relatively low natural 
gas price, gas production is forecasted to decrease in the 
short term. Do you believe this decreased production will 
increase natural gas prices in the short term?
    Approximately what length of time do you mean by short 
term?
    Do you believe that limited amounts of natural gas 
exports--I'll get to the export question in a minute.
    Just answer those first 2 and then I'll get to exports.
    Mr. Sieminski. Short term for us, Senator, is the timeframe 
for the EIA short term Energy Outlook goes out to the end.
    The Chair. Which is 2 years?
    Mr. Sieminski. Yes, 2 years.
    The Chair. Your long term is 40?
    Mr. Sieminski. Twenty-five years.
    The Chair. Twenty-five.
    Mr. Sieminski. Right.
    The Chair. Do you have anything in the middle that seem? 
Two years to me is like two short to be of use and 25 years is 
like too long to count on. So I'm wondering why you don't do 8 
to 12.
    Mr. Sieminski. The Annual Energy Outlook does include 
projections, you know, in annual increments all the way out to 
the year 2040. So you can get some medium term forecast from 
that. But----
    The Chair. OK.
    So what's your short term forecast?
    What's your short term forecast for gas prices?
    Mr. Sieminski. Short term forecast is, for gas prices, to 
hold at around $4 a million btu.
    Over the longer term we expect that to climb up over, you 
know, toward $6 and that is in the period out to 2030.
    The Chair. OK, which is a long time to project. I have some 
issues with trying to project out that far.
    But what are your assumptions about exports and what volume 
of exports is included in that assumption?
    The Chair. Of gas.
    Mr. Sieminski. Right. For natural gas in the very short 
run----
    The Chair. No. Over that longer period.
    Mr. Sieminski. The longer period?
    The Chair. What are your assumptions for exports?
    Mr. Sieminski. Alright.
    We have--that's built into the Annual Energy Outlook. We 
assume that there will be a couple of LNG. So I presume the 
exports you're talking about are not to Mexico which we 
actually do see pipeline exports increasing there. The 
possibility of some pipeline exports to Canada.
    The thing that most people have been looking at very 
closely is LNG, liquefied natural gas exports. EIA's 
assumptions include a couple in the medium term. So let's say 
out in the next 5 years. A couple of----
    The Chair. But the volume. It's got to be 12 to 20.
    Mr. Sieminski. Right. Up to----
    The Chair. Something like that. What are you all 
estimating?
    Mr. Sieminski. We are up to a little over 10 billion cubic 
feet a day at the end of the timeframe.
    The Chair. In your estimates.
    Mr. Sieminski. We are going to begin to do some work to 
look at the possibility of what it would mean if exports of LNG 
approach something closer to your 20 bcf a day figure.
    The Chair. Then finally in your long term which I have 
difficulty accepting, but for the purposes of this discussion, 
your long term is that gas would be at 6. What do you have oil 
at the equivalent number at the same time you have gas, you 
know, rising to 6. What is your oil production?
    Mr. Sieminski. I think by 2040 we actually have natural gas 
prices up to just a little under $7 so we could get to 6 in 
around 2030.
    The Chair. OK.
    Mr. Sieminski. For oil prices in the reference case 
continue to climb in real terms by a few percentage points per 
year. So that by 2040 you're up to about 100 and--I think it's 
$140. But I'll supply that number to you for the record.
    The Chair. One hundred dollars a barrel?
    Mr. Sieminski. Right.
    The Chair. Yes, that's not going to be really good news for 
consumers in the country for gas. It will be very good for the 
producers who want to explore and make a significant profit for 
the exploration. But for consumers.
    So gas is still going to be a bargain if we could get more 
of it. I would think it would really be very helpful to the 
country.
    Mr. Sieminski. You're absolutely right about that.
    We see a gas price to oil ratio continuing to favor, in a 
sense, oil which makes natural gas attractive to both 
industrial users and other consumers of natural gas. Because of 
that in the Annual Energy Outlook we have rising use of natural 
gas by electric utilities, by industrial users and even in the 
transportation area.
    The Chair. OK.
    Do you all have any final comments you'd like to make? 
Thirty seconds closing each before we go to the second panel.
    Mr. Sieminski. One of the--your questions, Senator, had to 
do with, you know, finding oil.
    Yes, I think it is pretty critical to drill. There are 
about, I think, more than 100 rigs looking for oil and gas in 
the Gulf of Mexico and there are no rigs drilling for oil in 
the Atlantic right now. The history of the oil industry is that 
you find more oil by drilling holes than you do with models and 
geologic interpretation.
    Mr. Cruickshank. I would just close by reiterating we look 
forward to working with you on the development of the next 5 
year program where areas in the Atlantic and really the entire 
OCS is on the table for discussion right now. We'll see where 
that decisionmaking takes us.
    The Chair. Thank you.
    We don't want to leave out Alaska. Unfortunately Alaska is 
not on this chart. So we'll try to get something up for our 
next hearing because that's a very important part of the 
country.
    Of course in Alaska people don't realize but it takes up 
about half of the continent of the lower 48 basically. That's 
how big Alaska is. It's--you have that map? Good. I thought you 
might have brought it.
    We should put up Alaska, not to leave Alaska out. They 
would not be happy about that.
    But they have most of the opportunities for offshore and, 
you know, different temperature and climate issues, 
particularly on the North of Alaska. South is more moderate. 
But we'll talk about that later with some of the other 
panelists.
    Alright, thank you all very much. Appreciate your 
testimony.
    If the second panel will come forward?
    Thank you very much.
    Our second--and as they come forward I'll introduce them 
for efficiency purposes.
    First I'd like to welcome Mr. Kent Satterlee, III, Manager 
of Regulatory Policy for Offshore, Upstream America at Shell 
Exploration and Production Company. Shell is one of the largest 
lease holders and producers on the U.S. Outer Continental Shelf 
and a leader in Alaska production.
    To be fully disclosed here, Kent is also my first cousin. 
I'm very proud of Kent. So thank you, Kent, for joining us.
    Next we have Mr. Joe Leimkuhler, lime cooler, Vice 
President-Drilling of LLOG Exploration Company right here at 
home. I understand that Mr. Leimkuhler has over 30 years of 
industry experience in both onshore and offshore drilling. 
Currently oversees drilling at one of the top companies 
operating in the Gulf of Mexico.
    Next we have--and please you all can be seated.
    Next we have Mr. Court Ramsay, President and CEO of Aries 
Marine Corporation. Mr. Ramsay brings over 20 years of 
experience in the oil and gas marine industry. His company 
Aries Marine operates a diverse fleet of self evaluating--self 
elevating work boats and supply vessels in the Gulf of Mexico 
working with both major and independent producers.
    We have Mr. Oneil Malbrough, Executive Director of Coastal 
Ports and Marine Environment and Infrastructure of CB and I, 
one of the world's largest energy infrastructure companies with 
a large presence in the Gulf of Mexico and a significant 
corporate presence in Baton Rouge, Louisiana. We welcome you.
    Finally Mr. Chett Chiasson, Executive Director of Port 
Fourchon. As we all know Port Fourchon provides vital supplies 
and services to the Gulf of Mexico offshore, deep water oil 
platforms. It's truly a phenomenal and essential energy port 
that does it all for the deep water. We look forward to hearing 
from your comments, particularly about the infrastructure 
challenges that affect our 5 year oil and gas plan for the 
Nation.
    So Mr. Satterlee, we will begin with you.
    We ask you all to limit your remarks to 5 minutes as time 
allows we'll have you be able to add. Of course, you can fill 
in some of the things if you didn't get to say it in your time 
in questions. We thank you very much.
    You may have to lean into the microphone.
    Thank you very much for the work that Shell does and for 
your extraordinary commitment to this area, post Katrina and 
Mercando.

   STATEMENT OF KENT SATTERLEE, MANAGER, OFFSHORE REGULATORY 
        POLICY, SHELL EXPLORATION AND PRODUCTION COMPANY

    Mr. Satterlee. Thank you, Madame Chair. Thank you for the 
opportunity to testify today on behalf of Shell to examine OCS 
production and what it means for our country. This hearing is 
timely as both the Federal and State governments work to 
address energy supply and demand, climate challenges and 
continued economic recovery.
    We live in a world facing significant increases in demand 
globally. In order to meet the growing global energy demand the 
U.S. needs access to more domestic oil and gas because we can't 
continue to depend on foreign supplies when most of the 
expected population growth is in other countries that are 
competing with the U.S. for energy. The OCS offers a bountiful 
resource, much of which is untapped.
    U.S. domestic oil and gas production is up. That's good 
news because energy from coal resources is down and renewable 
energy, like wind and solar, is not expected to increase 
appreciably according to the EIA. We have witnessed the 
greatest energy expansion in the history of the world with our 
U.S. onshore, unconventional gas. We have the ability to see a 
similar expansion in supply from the offshore.
    In 2013 the Gulf of Mexico produced 457 million barrels of 
oil in condensate down from a record OCS oil production of 570 
million barrels in 2009. Natural gas production in the Gulf of 
Mexico is also down from a high of 5 trillion cubic feet in 
2000 to just above one tcf in 2013. We can do better.
    The BOEM estimates 88.6 billion barrels of oil and 398.4 
trillion cubic feet of gas have yet to be discovered on the 
U.S. OCS. A significant amount of those resources are located 
in the Eastern Gulf of Mexico and in the Atlantic where they 
remain off limits to oil and gas exploration and development. 
According to the BOEM, 87 percent of offshore acreage is off 
limits.
    A 2011 study by Wood Mackenzie shows that developing these 
off limit areas could create more than one million new jobs and 
generate $127 billion in new government revenue by the year 
2020.
    Energy producers, including Shell, carefully evaluate when, 
how and where they will invest in opportunities globally. As 
you can see from the gap on the map, our neighbors to the north 
and the south, moving forward developing their oil and gas 
resources where safety, environmental protection and jobs and 
revenue are equally important. With offshore access growing 
across Canada, Mexico and Latin America, the U.S. risks losing 
jobs, revenue and technology to other countries if we continue 
to block further development. Competition for investments in 
recent and upcoming bid rounds will widen this development gap.
    Since Mercando the root cause cementing issues have been 
addressed and a new industry standard. Other new and revised 
standards address deep water wall construction, operator and 
contractor management systems and blow out prevention 
equipment. But we are confident that we can drill and produce 
safely at deep water locations in the Gulf and elsewhere on the 
OCS. Continuous improvement is our goal. We can never be 
satisfied.
    We need to act now though. We can start in 4 key areas.
    No. 1, include today's off limit lease areas in the next 5 
year plan so we can access and explore these significant 
opportunities, particularly in the Eastern Gulf of Mexico and 
in the Mid and South Atlantic margin.
    In order to have new OCS access available for leasing 
during this period it is crucial that Interior include these 
areas in a Section 18 review and in their EIS. It must also 
move quickly to approve seismic permits so that new resource 
data can be collected. Seismic acquisition properly mitigated 
causes no harm to marine animals.
    No. 2, enact Federal revenue sharing legislation which 
allocates bonus and royalty revenues to the those coastal 
States with existing or planned offshore development. As you 
have already done for the Gulf of Mexico and are seeking to 
expand.
    No. 3, adopt performance based regulatory oversight 
programs.
    The U.S. must improve the efficiency of its regulatory 
system. As our regulatory regime continues to evolve we urge 
you to work with Federal regulators to achieve regulatory 
certainty for our industry. Permits to explore and develop must 
be reasonable and issued expeditiously.
    For example, over a year for an air permit from EPA to 
drilling exploratory well in the Eastern Gulf of Mexico is not 
reasonable.
    Fourthly, recognize the benefits of America's oil and gas 
resources and the opportunities that it brings all Americans, 
not just those who work in our industry.
    To achieve this our Federal Government must enact policies 
that encourage investment here in the U.S.
    The U.S. could sit on the sidelines and watch as 
neighboring countries explore offshore opportunities or we can 
work together toward a common goal safely, responsibly and 
efficiently harnessing the benefits of our resources for our 
country, for America's energy future.
    Thank you very much.
    [The prepared statement of Mr. Satterlee follows:]
  Prepared Statement of Kent Satterlee, Manager, Offshore Regulatory 
            Policy, Shell Exploration and Production Company
    Madame Chair and members of the Committee, thank you for the 
opportunity to testify today of behalf of Shell Oil Company at this 
hearing to examine Outer Continental Shelf (OCS) production and why it 
is important for our country.
    This hearing is timely as both the federal and state governments 
work to address energy supply and demand, climate challenges, and 
continued economic recovery.
    Shell is an integrated oil and gas company, dedicated to meeting 
ever-growing energy demands efficiently and responsibly. We are active 
in more than 70 countries, and have a long history of deepwater 
development. At Shell, safety, sustainability, innovative technologies, 
and new, viable energy sources are essential. They are our business.
    We live in a world facing significant increases in demand globally. 
The US Census Bureau puts the world population at over 7 billion today 
and estimates it to reach 8 billion by 2025 and 9 billion by 2040. 
Energy consumption to provide for the needs of these people is expected 
to increase 56 percent by 2040. In order to meet growing, global energy 
demand, the U.S. needs access to more domestic oil and gas because we 
can't continue to depend on foreign supplies when most of the expected 
population growth is in other countries that are competing with the 
U.S. for energy. The OCS offers a bountiful resource, much of which is 
untapped.
    U.S. domestic oil and gas production is up. That's good news, 
because energy from coal resources is down; and renewable energy, like 
wind and solar, is not expected to increase appreciably, according to 
the EIA. We have witnessed the greatest energy expansion in the history 
of the world with our U.S. onshore unconventional gas, and we have the 
ability to see a similar expansion in supply from the offshore. The 
Bureau of Ocean Exploration and Management (BOEM) estimates 88.6 
billion barrels of oil and 398.4 trillion cubic feet of gas have yet to 
be discovered on the U.S. OCS. In 2013, the Gulf of Mexico produced 457 
million barrels of oil and condensate, down from a record OCS oil 
production of 570 million in 2009. Natural gas production in the Gulf 
of Mexico is also down from a high of 5 trillion cubic feet in 2000 to 
just above 1 TCF in 2013.
    And a significant amount of those resources are located in the 
eastern Gulf of Mexico and in the Atlantic-where they remain ``off 
limits'' to oil and gas exploration and development. According to the 
BOEM, 87 percent of offshore acreage is ``off limits''.
    A 2011 study by Wood Mackenzie shows that developing these ``off 
limit areas'' could:

   Create more than 1 million new jobs; and
   Generate $127 billion in new government revenue by 2020.

    According to Interior's analyses, conducted pursuant to Section 18 
of the OCS Lands Act, it is estimated that over $1 trillion in net 
economic value is associated with development of the GOM over the past 
20 years. Studies of employment benefits estimate that over 150,000 
direct jobs are associated with GOM federal offshore development. In 
addition, there are ``multiplier'' effects which extend to virtually 
all of the 50 states. The Federal government has collected over a $150 
billion in revenues.
    While official DOI resource assessments in the 1980's heavily 
discounted any possibility of significant resource potential in the 
deepwater GOM, exploration results proved otherwise. Our industry has 
continued to find new reserves and has successfully developed the 
technology to recover them. Energy producers, including Shell, 
carefully evaluate when, how and where they invest in opportunities 
globally.
    As you can see from the gap on the map, our neighbors to the north 
and south are moving forward, developing their oil and gas resources--
where safety, environmental protection, jobs and revenue are equally 
important. With offshore access growing across Canada, Mexico and Latin 
America, the U.S. risks losing jobs, revenue and technology to other 
countries if we continue to block development. Competition for 
investments in recent and upcoming bid rounds will widen this 
development gap.
    Shell's experience in the Gulf of Mexico and elsewhere around the 
world shows that we can produce oil and gas safely and efficiently, and 
our technology is helping us produce more with a smaller environmental 
footprint. In the Gulf of Mexico, Shell currently operates seven major 
floating offshore facilities, 12 fixed structure platforms, numerous 
subsea production systems; and we have under contract one of the 
largest drilling rig fleets.
    Shell urges you to support the 5-year planning process and the 
unanimous inclusion of all of the ``off limit'' lease areas, so we can 
access and explore these significant opportunities. Our interest is in 
all areas currently open for leasing in the Gulf of Mexico and offshore 
Alaska, but also exploration in new areas where the true potential of 
the resource is unknown, particularly in the Mid- and South-Atlantic as 
well as the Eastern Gulf of Mexico.
    We can safely, responsibly and effectively harness the economic 
benefits of our domestic oil and gas resources for our country's gain. 
Shell, and the industry, recognizes the need to explore for and produce 
natural resources in a safe and environmentally sound manner. Post-
Macondo, we all worked together-- operators, regulators, government 
officials, community members and others to further improve and move 
forward to deliver much needed energy from the Gulf of Mexico.
    We have seen safety standards implemented and we've seen step-
changes in prevention, intervention and response--thanks to advances in 
technologies and utilization-all contributing to improved safety of 
offshore exploration. In the weeks and months following the incident, 
new government regulations were put in place. New and revised industry 
standards were developed. Also, the Marine Well Containment Company is 
up and running. Shell was a founding member of this industry consortium 
that developed and maintains a containment system for underwater well-
control responses. The Center for Offshore Safety, which helps 
companies thoroughly and objectively audit safety and environmental 
management systems, is in full operation. And perhaps the most recent 
example of partnering, innovating and utilizing technology is Marine 
Vibroseis, where Total, Exxon and Shell are working together to use low 
frequency vibration technology to minimize underwater noise during 
seismic surveys. Shell is proud to have been involved in all of these 
game-changing initiatives.
    Deepwater development has been remarkably successful, not only from 
an energy production standpoint, but also from a safety standpoint. For 
the past 18 years, the MMS (now BSEE) has required Deepwater Operations 
Plans (DWOPs). The DWOP process is a flexible, goal-setting regulatory 
approach that has facilitated deepwater development and enhanced 
safety. DWOPs assess risks, barriers, and operational controls for all 
deepwater projects. Through 2013, 1271 DWOPs had been approved for 410 
projects. 5.2 billion barrels of oil and condensate and 17 tcf have 
been produced from these projects without a major safety incident.
    Since Macondo, the root cause cementing issues have been addressed 
in a new industry regulatory standard. Other new or revised standards 
address deepwater well construction, operator and contractor management 
systems, and blowout prevention equipment. BSEE participates in the 
standards committees. While we are confident that we can drill and 
produce safely at deepwater locations in the Gulf and elsewhere on the 
OCS, continuous improvement is our goal and we can never be satisfied.
    We need to act now, and we can start in 4 key areas:

          1) Include--today's ``off limit'' lease areas in the next 5-
        year plan, so we can access and explore these significant 
        opportunities, particularly in the Eastern Gulf of Mexico and 
        the Mid-and Southern Atlantic margin. The Interior Department 
        has just initiated its 2017-2022 leasing plan and is accepting 
        public comments. In order to have new OCS areas available for 
        leasing during this period, it is crucial that Interior include 
        these areas in its Section 18 review and EIS. It must also move 
        to quickly approve seismic permits so that new resource data 
        can be collected. Seismic acquisition, properly mitigated, 
        causes no harm to marine animals.
          2) Enact--Federal Revenue Sharing legislation which allocates 
        bonus and royalty revenues to those coastal states with 
        existing or planned offshore development, as you have already 
        done in the Gulf of Mexico and are seeking to expand.
          3) Adopt--performance-based regulatory oversight programs. 
        The U.S. must improve the efficiency of the regulatory system. 
        Federal agencies need to work together and be adequately 
        funded. As our regulatory regime continues to evolve, we urge 
        you to work with Federal regulators to achieve regulatory 
        certainty for our industry. Permits to explore and develop must 
        be reasonable and issued expeditiously. For example, over a 
        year for an air permit from EPA to drill an exploratory well in 
        the Eastern Gulf is not reasonable. With performance-based 
        regulation and a productive collaboration between government, 
        industry and other stakeholders, we can address concerns and 
        move forward. We must gather the necessary science that shows 
        that offshore development can proceed without compromising our 
        environment. Our regulatory system has not kept pace with the 
        technological advancements of ultra-deep water and frontier 
        areas, like the Arctic. The U.S. has not kept pace with other 
        countries in moving toward performance-based systems and risks 
        falling behind.
          4) Recognize--the benefits of America's oil and gas resources 
        and the opportunities it brings to all Americans, not just 
        those that work in our industry. The jobs created extend to 
        most every sector of our economy, and affordable energy enables 
        us live comfortably and invest in our economy. To achieve this, 
        our Federal government must enact policies that encourage 
        investment here in the U.S. and not export it to other 
        countries.

    Producing more oil and gas in our own country is a ``win-win'' 
proposition. It provides real economic and security benefits. With 
increased domestic production, less money is exported from the U.S., 
more money is invested here and federal revenues increase through 
royalties and taxes. This can be done in a way that provides 
appropriate environmental protections based on solid science.
    The U.S. could sit on the sidelines, and watch as neighboring 
countries explore offshore opportunities, or we can work together, 
toward a common goal of safely, responsibly and efficiently harnessing 
the benefits of our resources for our country- for America's energy 
future.

    The Chair. Thank you very much, Mr. Satterlee.
    Mr. Leimkuhler.

   STATEMENT OF JOSEPH LEIMKUHLER, VICE PRESIDENT-DRILLING, 
                LLOG EXPLORATION COMPANY, L.L.C.

    Mr. Leimkuhler. I also have some slides to cover so let me 
just put these windows up.
    Madame Chair, thank you for inviting me to testify today on 
behalf of LLOG Exploration Company. LLOG welcomes this 
opportunity to provide what we see as the opportunities and 
challenges to further development of the Nation's resource in 
the Outer Continental Shelf. My goal is to provide you with a 
snapshot of our current operations, how those operations are 
conducted within the regulatory processes and what we see as 
improvement areas.
    First, a little overview of LLOG.
    I won't go over all of our history. I'll leave it there for 
you to look at. Unlike a super, major, LLOG being an 
independent we are the largest, privately owned oil producer in 
the OCS. As a private company, unlike a super, major, we target 
our areas in specific niches within the Gulf of Mexico. So the 
expertise and capability bring to the areas we target is indeed 
state-of-the-art.
    I'll leave you with two main points on our background.
    Safety.
    At LLOG, safety is a core value. Priorities may change, but 
safety does not. In recognition of that value is LLOG being 
awarded the SOAR Award for Safe Operations and Accurate 
Reporting in 2008, the last year the award was made.
    In terms of scope, we have 16 deep water developments to 
date with 8 fields in the OCS currently under development.
    The core work for us centers around subsidy developments 
tied into floating offshore, deepwater platforms. We are the 
only private company to utilize this tool in the world. We use 
standardized well designs and standardized platform designs to 
be able to respond quickly to take advantage of the 
opportunities that the OCS provides.
    We have never drilled an expendable well.
    If we find oil in commercial quantities we have always 
found a way to produce it. We design our wells to production 
quality specifications so we can quickly turn our discoveries 
to producers as efficiently as any operator in the OCS.
    However, we operate within the same leasing framework. I'm 
not going to go over all of these processes. I only have 5 
minutes.
    But I did want to point out some areas specifically where 
LLOG feels that improvements can be made to help us improve our 
operations in the Gulf of Mexico. As Kent Satterlee mentioned 
first of the air permits required. The Clean Air Act actually 
divides the jurisdiction of air permits in the Gulf of Mexico 
into two regions. They are not aligned with the leasing 
planning areas of the Gulf of Mexico.
    So the first request from LLOG is that if we could have the 
planning for the air permits lined with at least the operating 
areas. Our preference would be to have BOEM manage all air 
permit approval for all drilling operations and production 
operations in the OCS. But in light of that it would be a big 
help to at least get it lined up with the planning areas.
    As you can see in the western central--eastern central Gulf 
of Mexico, the EPA jurisdiction out of Atlanta and Kent already 
mentioned that takes a year to get that permit. The permit is 
also rig specific. So you have to know what rig you're going to 
have to contract a year in advance.
    The Chair. That doesn't make any sense.
    Mr. Leimkuhler. So we are applying for those permits. We're 
moving forward to develop the leases that LLOG has in that 
area, but it would make a lot more sense and be more efficient 
for us. We feel it can be done with no impact to compliance 
with the Clean Air Act.
    The second issue that we find is dealing with our--with the 
actual capability of the regulatory agencies to process and 
permit our approvals. I've worked my entire career offshore 
since 1987 in the deep water Gulf of Mexico and the technical 
professionals and regional management at the MMS, what was the 
MMS, BOEM and BSEE that I have worked with over that time were 
and are consistently professional, capable and dedicated. We 
just need more of them.
    We continue to receive our well related permits, drilling, 
as well as completion just in time. This is not due to a lack 
of effort by the BSEE and BOEM staff, but rather an 
understaffed situation despite the best efforts of BSEE and 
BOEM district and regional management to obtain and recruit 
talent. The overall approval cycle could be improved with 
increase in agency capability.
    We're finding that the more knowledgeable staff are 
retiring which leaves the current staff shorthanded and 
overworked. Not to mention the lack of experience among the 
understaffed. This is part of the larger big crew change. It's 
a challenge not only for industry, but also BSEE's district 
managers and BOEM's regional supervisors. Because of the 
situation permits are being approved with a short window prior 
to commencement of operations which makes it difficult for us 
to conduct operations that require long lead time for planning 
and sequential approvals.
    So in conclusion of this statement, additional capable 
agency staff equals additional permit approvals, additional 
production revenue and additional economic development.
    Third is the comingling approval process. LLOG strives to 
make all the wells we drill commercial by using smart well 
technology to open up multiple zones and adjacent surface 
reservoirs within the same well.
    To make our project economically viable we normally request 
to comingle our down hole production from these zones. Our deep 
water rigs often drill development wells in subsea fields where 
the completion of the well immediately follows the drilling 
process. As long as Mother Nature cooperates and we find the 
reservoirs in the expected locations and depths we can file for 
our comingling approvals in plenty of time.
    However, we often find our zones do not come in as 
expected. We need to either file for an initial comingling 
permit or modify an existing permit. With a rig on location 
consuming over a million dollars a day in capital we need to 
evaluate the ability and likelihood to obtain a comingling 
permit approval verses the potential impact of costly delays to 
project profitability. Under such conditions even the 
expectation of delays make some zones uneconomic and thus 
reserves are being lost.
    Additional improvement opportunities related to operations 
are in the areas of containment response and the impact of 
rigid application of the Jones Act to offshore facility 
installation. In containment response those needs are met by 
two providers, the Marine Well Containment Corporation and the 
Helix Well Containment Group. Both are very capable 
organizations that together provide a diversity of suppliers, 
operator expertise and response capabilities. This diversity of 
response should be encouraged and continued.
    However, in LLOG's view this response capability is at risk 
of being compromised if responder immunity is not improved. We 
urge the passage of the proposed amendment covering improved 
responder immunity.
    With respect to heavy lifts associated with offshore 
facility installations in the Jones Act, LLOG encourages the 
Coast Guard and regulatory agencies to adhere to the historical 
application of the law with respect to transport vessels. 
Current rigid application of the Jones Act to heavy lift 
vessels for the minimal distances that those vessels move the 
suspended load for offshore installation has resulted in 
increased lift complexity, scope and added risk.
    In addition, LLOG feels that continued application of the 
Jones Act to heavy lift vessels has the potential to transfer 
the work away from Gulf Coast Fabrication yards.
    With regard to the management of Plug and Abandonment 
liabilities, it is LLOG's understanding that revisions to the 
supplemental bonding requirements are to be released in an 
upcoming notice to leasees or NTO. LLOG requests that serious 
consideration be given to the scope of the proposed changes. If 
the changes are more than a refinement or clarification of the 
existing regulations than the rulemaking process should be 
followed.
    Finally with regard to the regulators and operator 
interface we would like the Department of Interior to perform 
an after action review of the allocation of work scope between 
BOEM and BSEE. LLOG understands and supports the split of the 
revenue function to BOEM and the operational enforcement rule 
to BSEE. However in LLOG's view the full permitting and plan 
approval function, after the lease sale, through the full 
operational cycle should fall to BSEE.
    Thank you for the opportunity to present the views of LLOG 
and myself on these issues. Safe, efficient production and use 
of our Nation's resources on the OCS is good for LLOG, good for 
Louisiana, good for Gulf Coast and good for the Nation.
    [The prepared statement of Mr. Leimkuhler follows:]
Prepared Statement of Joseph Leimkuhler, Vice President-Drilling, LLOG 
                        Exploration Company, LLC
    Madame Chair and members of the Committee, thank you for inviting 
me to testify today on behalf LLOG Exploration Company. LLOG welcomes 
this opportunity to provide what we see as the opportunities and 
challenges to further development of the nation's resources in the 
Outer Continental Shelf (OCS). My goal is to provide you a snapshot of 
LLOG's current operations, how those operations are conducted within 
the regulatory processes of the Gulf of Mexico, and what we see as 
improvement opportunities.
    LLOG is one of the largest privately owned oil & gas firms in the 
country and is the largest private oil producer in the offshore US OCS. 
Our focus is the US Gulf of Mexico where we apply a targeted approach 
using floating production systems and subsea wells to safely and 
efficiently develop the nation's deepwater oil and gas resources.
    Unlike a Super Major our areas of focus is quite limited, however 
the level of expertise and capability we bring to those areas is state 
of the art. I'll leave the LLOG company background info on this slide 
for your reference, but wish to highlight two main points:
    Safety--At LLOG we hold safety as a core value--priorities may 
change but values do not. Recognition of that value is LLOG being 
awarded the SOAR award in 2008.
    Scope--we have 16 deepwater developments to date with 8 fields in 
the OCS currently under development.
    The core work for LLOG is the exploration of our leases in the Gulf 
of Mexico (GOM) utilizing standardized well designs to efficiently 
explore, followed by field development utilizing subsea production 
flowline systems that flow back to a central floating production 
platform. Utilizing these tools LLOG is able to construct viable 
economic subsea projects from multiple discoveries safely and 
efficiently. In our history we have yet to drill an ``expendable 
well''--if the oil and gas are present in commercial quantities we have 
been able to eventually produce the well. LLOG designs our wells to 
production quality specifications such that we can turn our discoveries 
to producers safely and efficiently as any operator in the OCS.
    How that process plays out within the regulatory framework is shown 
using a Simplified Permit Process Overview for a Subsea Well Tie in. 
Depending on where a subsea well is drilled in the GOM from 9-11 
permits or plan approvals are needed to move a prospect from leasingto 
production. Those permits and plan approvals are split between BOEM 
(red text) and BSEE (blue text) and for the eastern Statement of Joseph 
Leimkuhler Vice--President--Drilling LLOG Exploration Company LLC to 
the U.S. Senate Committee on Energy and Natural Resources Monday, July 
7, 2014 July 5th, 2014 2 portion of the central gulf planning area the 
EPA (bold black text). I do not have time to cover all these approvals 
but wish to highlight three where LLOG feels there are improvement 
opportunities and address other issues not indicated on this process 
diagram.
    First is the air permits required to be compliant with the Clean 
Air Act (CAA). [Show Slide 6] For wells drilled in the OCS in the 
Western Planning area the CAA compliance is incorporated into the 
Exploration Plan approval process required by BOEM. This also applies 
to the majority of wells drilled in the Central GOM Planning Area with 
the exception of the Eastern portion of the Central Planning Area where 
EPA jurisdiction applies. The EPA air permit approval process and 
protocol is quite different from the BOEM protocol and takes from 12-18 
months to secure. This EPA permit is actually individual rig specific 
versus rig type specific in the BOEM protocol and in our view adds 
operational complexity and delays with no actual benefit relative to 
CAA compliance. LLOG urges you to allow BOEM to assume CAA compliance 
across the GOM and at a minimum allow BOEM to administer CAA compliance 
for the western and central planning areas.
    Second is the APD or drilling permit approval process. I have 
worked my entire offshore career since 1987 in the Deepwater Gulf of 
Mexico and the technical professionals and Regional Management at the 
MMS, BOEM and BSEE that I have worked with over that time were and are 
consistently professional, capable and dedicated . . . we just need 
more of them.
    We continue to receive our well related permits (drilling and well 
as completion and workover) just in time. This is not due to a lack of 
effort by the BSEE and BOEM staff, but rather an understaffed 
situation, despite the best efforts of BSEE and BOEM district and 
regional management to retain and recruit talent. The overall approval 
cycle could be improved with an increase in agency capability.

   We are finding that the more knowledgeable staff are 
        retiring which leaves the current staff short-handed, and 
        overworked, not to mention the lack of experience among the 
        younger staff. This is part of the larger ``Big Crew Change'' 
        and is a challenge not only for industry but also for BSEE's 
        District Managers and BOEM's Regional Supervisors. Because of 
        this situation, permits are being approved with a short window 
        prior to commencement of operations, which makes it difficult 
        for operators to conduct operations that require a long lead 
        time for planning and sequential approvals.

   In our opinion funding should not be an issue. Given the 
        amount of fees charged for permitting we feel the financial 
        resources are available. This year alone, LLOG has paid 
        $431,507 to date in permit fees for DOCDs, EPs, APDs, APMs, 
        Pipeline, Facility permits and rig inspection fees. With our 
        current anticipated workload, LLOG will spend close to $1MM 
        this year in permitting fees. This does not include the 
        revenues paid to the federal agencies from Lease Sales, 
        Bonuses, nor revenue from Royalties. Can this revenue stream be 
        focused on staff retention, recruiting and capabilities within 
        the agencies?

    Additional capable agency staff=additional permit approvals, 
additional production revenue & additional economic development.
    Third is the comingling approval process. LLOG strives to make all 
the wells we drill commercial by utilizing smart well technology to 
open up multiple zones in adjacent subsurface reservoirs within the 
same well. To make such projects economically viable we normally 
request to comingle dowhhole the production form those zones. Our 
deepwater rigs often drill development wells in subsea fields where the 
completion and subsequent production from the wells immediately follows 
the drilling and casing of the well in a continuous operation. As long 
as mother nature cooperates and we find the reservoirs in the expected 
location and depth, we can file for our commingling permit with plenty 
of time for approval. However, we often find zones that do not come in 
as expected and we need to either file for an initial commingling 
permit or modify an existing permit. With a rig on location consuming 
over $1 million a day in capital we need to evaluate the ability and 
likelihood to obtain comingling permit approval versus the impact of 
costly delays to the project profitability. Under such conditions even 
the expectation of delays makes some zones uneconomic, thus reserves 
are being lost.
    Additional improvement opportunities related to operations are in 
the areas of Containment Response and the impact of rigid application 
of the Jones Act to offshore facility installation.
    In containment response those needs are met by two providers the 
Marine Well Containment Corporation or MWCC and the Helix Well 
Containment Group (HWCG). Both are very capable organizations that 
together provide a diversity of suppliers, operator expertise, and 
response capabilities--this diversity of response should be encouraged 
and continued. However, in LLOG's view this response capability is at 
risk of being compromised if Responder Immunity is not improved. We 
urge the passage of the proposed amendment covering improved Responder 
Immunity.
    With respect to heavy lifts associated with offshore facilities 
installations and the Jones Act. LLOG encourages the USCG and 
regulatory agencies to adhere to the historical application of the law 
with respect to transport vessels. Current rigid application of the 
Jones Act to heavy lift vessels for the minimal distances that these 
vessels move the suspended load (in most cases hundreds of feet or 
less) is resulting in increased lift complexity and scope and adding 
risk. In addition LLOG feels continued application of the Jones Act to 
heavy lift vessels has the potential to transfer work away from Gulf 
Coast Fabrication yards.
    With regard to the management of Plug and Abandonment liabilities--
it is LLOG's understanding that revisions to the supplemental bonding 
requirements are to be released in an upcoming Notice to Lessee or NTL. 
LLOG requests that serious consideration be given to the scope of the 
proposed changes. If the changes are more than a refinement or 
clarification of the existing regulations then the rule making process 
should be followed.
    Finally with regard to the Regulators and Operator Interface--we 
would like the Dept. of Interior to perform a AAR--an After Action 
Review--of the allocation of work scope between BOEM and BSEE. LLOG 
understands and supports the split of the revenue function to BOEM and 
the operational enforcement role to BSEE. However, in LLOG's view the 
full permitting and plan approval function after the lease sale through 
the full operational cycle should fall to BSEE.
    Thank you for the opportunity to present the views of LLOG and 
myself on these issues. Safe, efficient production and use of our 
nation's resources from the OCS is good for LLOG, Louisiana, the Gulf 
Coast and the Nation.

    The Chair. Thank you very much.
    Mr. Ramsay.

 STATEMENT OF COURT RAMSAY, PRESIDENT, ARIES MARINE CORPORATION

    Mr. Ramsay. Good afternoon.
    Thank you, Madame Chair, for the opportunity to participate 
in today's hearing on OCS production. My name is Court Ramsay. 
I'm the President of Aries Marine Corporation, an offshore 
marine service company here in Lafayette.
    Aries Marine was founded in 1981, employs over 300 people 
and operates a fleet of 24 vessels.
    Fifteen are self elevating work platforms, known as lift 
boats or jack ups and they're used in platform maintenance and 
repair.
    The other 9 vessels are supply boats that deliver the 
various equipment, drilling mud and commodities to the drilling 
platforms.
    Aries, in addition, has another 5 boats under construction, 
4 of which are being built here in Louisiana.
    Our fleet is part of a robust offshore support vessel 
industry that was born in South Louisiana and currently 
includes approximately 1800 work boats flying the U.S. flag. 
The vessels support the entire life cycle of an offshore oil 
and gas well. From the beginning in seismic work all the way to 
the end of decommissioning and plug and abandonment, the work 
boats are part of this valid and necessary infrastructure.
    We're in the middle of a boat building boom. The energy 
renaissance in North America has kick started the largest ship 
building boom in over 3 decades. Seven hundred and fourty-five 
vessels are currently on order, under construction or have been 
recently delivered in the United States.
    Some of those are product carriers.
    Some of those are also offshore work boats.
    Those product carriers would be hauling crude and fine 
crude to regions outside the Gulf Coast and the shipyards will 
be building OSVs to the tune of 111 contracted since 2013. 
We're actually a net exporter of offshore support vessels 
currently.
    The Gulf of Mexico outlook is great. Interest in the U.S. 
Gulf has continued to strengthen over the last several years, 
especially in the deep water. There is an increase year after 
year of rigs working on our OCS.
    The Department of Interior also held a lease sale in March 
for 329 Gulf tracks that brought in over $872 million in high 
bids.
    The impact on Louisiana.
    The growth in shipbuilding and the offshore exploration and 
production is particularly beneficial to our State. It not only 
employs the people in the energy sector, but it also leads the 
Nation in domestic maritime jobs and ranks third in 
shipbuilding jobs.
    Some new frontiers.
    Opportunities to open additional areas in Alaska and the 
Mid Atlantic to offshore development of fossil fuels could spur 
significant job growth and economic activity as will wind 
projects off the coast of Massachusetts, Rhode Island, 
Delaware, Maryland, Virginia. In order to take advantage of 
these opportunities though, it's imperative that the Department 
of Interior move forward with planned lease sales and expedite 
the applications for drilling permits.
    Some challenges.
    Despite the growth of the offshore marine industry a deluge 
of regulatory requirements from Washington is threatening that 
growth. Domestic offshore vessel companies have become 
collateral damage in the aftermath of the Deep Water Horizon 
incident and are subject to multiple overlapping and 
duplicative safety and environmental regimes and regulations.
    One example.
    Just last year the Coast Guard announced plans to require 
all vessels operating on the OCS to implement vessel specific 
safety environmental management systems, also known as SEMS 
plans. But vessel operators already comply with safety 
management and systems mandated by another Federal agency, the 
Bureau of Safety Environmental Enforcement. Our customers, the 
operators, are required to ensure that all contractors have 
safety policies and procedures in place to support the 
implementation of the operator safety management system.
    Believe me, there are regular and consistent contractor 
audits undertaken to ensure that the contractors are in 
compliance with the operator's plans. This new proposed Coast 
Guard regulation will create 2 different safety plans for a 
single OCS operation by two different regulatory agencies. This 
makes this proposal not only duplicative, but potentially 
contradictory and dangerous.
    Training requirements continue to rise. Our industry is 
also the subject of increase and then sometimes excessive 
training requirements for the crew members which cost the boat 
operators significant amounts of time and money and represent a 
real barrier to recruitment.
    The overall impact of regulations.
    The offshore marine industry believes strongly in promoting 
a culture of safety and environmental stewardship and instills 
those values on each and every one of our crew members. For 
years now the U.S. work boat industry has had a stellar safety 
record, but OSVs operating in the Gulf of Mexico today travel 
with bookshelves that are continuously loaded down with 
additional rows of plans, procedures, manuals required by 
multiple Federal agencies. They are continuing to overlap 
regulation upon regulation in the offshore environment. This 
trend not only makes compliance costly and difficult, it 
threatens to put family owned boat companies out of business 
and shift the focus toward paperwork instead of safe 
operations.
    The Chair. Thirty seconds.
    30 seconds, if you can try to wrap up.
    Mr. Ramsay. In closing I'll give you some information about 
my company that I'm especially proud of.
    We have a loyal and dedicated work force of some of the 
greatest Americans alive. Over 300 employees work for Aries 
Marine and enjoy salaries that can support a family along with 
rich benefits, medical insurance, supplemental insurance and 
401K retirement plans. It's a great package in any industry.
    But the phenomenal thing is we provide the family's medical 
benefits too. Through Aries Marine over 900 people enjoy the 
comforts of medical insurance. That's what this industry does 
for America in this region. That's what this industry can do 
for America and other regions.
    Thank you for this opportunity. I'd be happy to answer any 
questions you have.
    [The prepared statement of Mr. Ramsay follows:]
Prepared Statement of Court Ramsay, President, Aries Marine Corporation
Introduction
    Thank you, Madam Chair, for the opportunity to participate in 
today's hearing on OCS production.
    My name is Court Ramsay, and I am the President of Aries Marine 
Corporation, an offshore marine service company headquartered in 
Lafayette. Aries Marine was founded in 1981, employs over 300 people, 
and operates a fleet of 24 vessels. 15 of those are self-elevating work 
platforms, also known as liftboats or jackups, which are used for 
platform maintenance and repair, workover operations, pipeline repairs, 
well hookups, rig tending, and salvage operations. The other 9 vessels 
are supply boats that deliver equipment, drilling mud, and other 
commodities to offshore drilling and production operations in both 
shallow and deep water. Aries has another 5 boats on order right now, 
and has performed work for every major and most of the independent oil 
and gas companies in the Gulf of Mexico, as well as on the west coast, 
Alaska, and Hawaii.
    The Aries Marine fleet is part of a robust offshore support vessel 
industry that was born in South Louisiana and currently includes 
approximately 1,800 workboats flying the U.S. flag. These vessels 
support the entire life cycle of an offshore oil and gas well--
conducting seismic surveys, drilling test wells, towing and installing 
production platforms, laying pipelines, providing dive support, 
transporting workers, fuel, and equipment, and facilitating the 
decommissioning of platforms and the plugging and abandonment of wells. 
America's offshore workboat fleet is a critical part of this nation's 
energy infrastructure, and we are proud as a company and an industry to 
support the development of natural resources in the Gulf of Mexico and 
elsewhere.
Opportunities
            Boatbuilding Boom
    The energy renaissance in North America has kick-started the 
largest shipbuilding boom in over three decades. 745 vessels are 
currently on order, under construction, or have been recently delivered 
in the United States. That includes 17 large product tankers and 8 
coastal tank barges. In addition to those, 336 inland tank barges were 
delivered last year, breaking the previous record of 261 established in 
2012. These vessels will facilitate increased shipping of traditional 
heavy and non-traditional light, sweet crude to refineries outside the 
Gulf region. In addition to product carriers, U.S. shipyards are also 
building more offshore support vessels, entering into 111 contracts in 
2013 for new builds. The United States is now a net exporter of 
offshore support vessels as the industry tallied half a billion dollars 
in export revenues just last year.
            Gulf of Mexico Outlook
    Interest in the U.S. Gulf has continued to strengthen over the last 
several years, especially in deepwater. There are now 36 active rigs in 
the Gulf, up from 33 last year, and the Department of Interior held a 
lease sale in March for 329 Gulf tracts that brought in over $872 
million in high bids.
            Impact on Louisiana
    The growth in shipbuilding and offshore exploration and production 
is particularly beneficial to Louisiana, which not only employs people 
in the energy sector, but also leads the nation in domestic maritime 
jobs and ranks third in shipbuilding jobs. Many of the product carriers 
and offshore support vessels that I mentioned are being built in 
Louisiana yards, by Louisiana workers, and a big chunk of those OSVs 
will eventually be delivered to Louisiana operators, and crewed by 
Louisiana mariners.
            New Frontiers
    Opportunities to open additional areas in Alaska and the mid-
Atlantic to offshore development of fossil fuels could spur significant 
job growth and economic activity, as will wind projects off the coast 
of Massachusetts, Rhode Island, Delaware, Maryland, and Virginia. In 
order to take advantage of these opportunities though, it's imperative 
that the Department of Interior move forward with planned lease sales 
and expedite applications for drilling permits.
Challenges
            Regulatory Environment
    Despite robust growth in the offshore marine industry and 
opportunity on the horizon, the deluge of regulatory requirements from 
Washington is threatening that growth. Domestic offshore vessel 
companies have become collateral damage in the aftermath of the 
DEEPWATER HORIZON incident and the subject of multiple, overlapping, 
and duplicative safety and environmental regimes and regulations.
            SEMS
    For example, late last year the Coast Guard announced plans to 
require all vessels operating on the OCS to implement vessel-specific 
Safety and Environmental Management Systems (also known as SEMS) plans. 
But vessel operators already comply with Safety Management Systems 
mandated by another federal agency, the Bureau of Safety and 
Environmental Enforcement (BSEE), for all OCS lessees and their vessel 
contractors. Operators are required to ensure that all contractors and 
sub-contractors have safety policies and procedures in place that 
support the implementation of the operator's safety management system. 
There are regular and consistent contractor audits undertaken by 
operators to ensure compliance with the BSEE SEMS mandates and good 
industry practice. This proposed Coast Guard regulation will create two 
different safety plans for a single OCS operation by two different 
regulatory agencies, which makes this proposal not only duplicative, 
but potentially contradictory and dangerous.
            Other Vessel Requirements
    These vessels are also required to carry a Vessel General Permit 
(VGP) regulated by the Environmental Protection Agency (EPA), meet 
emission standards, abide by procedures for ballast water discharge, 
update marine safety manuals, conduct lifesaving and firefighting 
drills, undergo annual inspections, and keep up with new versions of 
these various requirements including equipment mandates and retrofits.
            Training Requirements
    Our industry is also the subject of increasing and sometime 
excessive training requirements for crewmembers, which cost boat 
operators significant amounts of time and money and represent a barrier 
to recruitment. The Coast Guard published regulations on Christmas Eve 
last year that amended the Standards of Training, Certification, and 
Watchkeeping (STCW), requiring additional sea service time for crew 
members aboard OSVs, medical certificates, and numerous other changes.
            Overall Impact of Regulations
    The offshore marine industry believes strongly in promoting a 
culture of safety and environmental responsibility and instills those 
values into each and every crewmember. For years now the U.S. workboat 
industry has had a stellar safety record, but OSVs operating in the 
Gulf of Mexico travel with bookshelves that are continuously loaded 
down with additional rows of plans, procedures, and manuals required by 
multiple federal agencies. They are continuing to overlap regulation 
upon regulation in the offshore environment. This trend not only makes 
compliance costly and difficult, it threatens to put family-owned boat 
companies out of business and shift the focus toward paperwork instead 
of safe operations, which will actually reduce safety instead of 
improving it.
Workforce Development
    Another significant challenge we are facing on the marine service 
side is workforce development. Although the Gulf region has a very 
skilled industrial workforce, it's an aging one, and we are struggling 
to feed the pipeline. The average age of a welder in U.S. shipyards is 
55. Given the aging mariner and shipyard workforce, increased funding 
and utilization of Department of Labor grants for training, 
advancement, and retention is needed, such as the State of Louisiana's 
Incumbent Worker program. Vessel operators are having a tough time 
recruiting new talent, and it's a shame because these are good paying, 
steady jobs that give students straight out of high school a chance to 
earn upward of 50, 60, or even 100 thousand dollars within 4 or 5 
years.
    Partnering with technical and community colleges is important, but 
we need to do more. We need to get into the elementary schools and the 
high schools and explain the incredible economic potential of these 
industrial jobs. Not all of our high schools should be college 
preparatory schools. We need to introduce trade skills into the 
curriculum on a wider basis and give kids the option to attend full-
time trade schools if they choose. Coastal Louisiana parishes enjoy 
some of the lowest unemployment rates in the country, but the maritime 
industry is still struggling to fill positions. High-paying jobs aren't 
being filled because not enough children are exposed to industry 
opportunities in the local economy or given a chance to attain skills 
to succeed in that industry. We need deckhands and welders, but we need 
engineers too, and science, technology, engineering, and math (STEM) 
programs at all age levels in this region of the country should also 
expose students more regularly to the offshore energy and marine 
industries that anchor South Louisiana's economy.
Conclusion
    In closing, I'll give you some information about my company that I 
am especially proud of. We have a loyal and dedicated workforce of some 
of the greatest Americans alive. Over 300 employees work for Aries 
Marine and they enjoy salaries that can support a family along with 
rich benefits of medical insurance, supplemental insurance, and a 401K 
retirement savings account. A great package in any industry but the 
phenomenal thing is we provide the families medical benefits, too. 
Through Aries Marine over 900 people enjoy the comforts of medical 
insurance. That's what this industry does for America.
    Thank you again for the opportunity to share my perspective on some 
of the opportunities and challenges faced by the offshore marine 
industry. I'd be happy to answer any questions.

    The Chair. Thank you, Mr. Ramsay. Excellent.
    Mr. Malbrough.

STATEMENT OF ONEIL MALBROUGH, CB&I, DIRECTOR OF COASTAL, PORTS 
           AND MARINE, ENVIRONMENT AND INFRASTRUCTURE

    Mr. Malbrough. First I'd like to thank you, Madame Chair, 
for allowing me to speak at this hearing and to talk about a 
critical issue that our local, coastal energy ports have been 
wrestling with for more than a decade. My name is Oneil 
Malbrough. I'm the Director of the Coastal, Ports and Marine 
Group for CB and I.
    The Coastal Ports and Marine Group is the engineering and 
construction management group for CBI that specializes in 
engineering and design of ports, channels, port infrastructure 
and marine towns.
    The presentation I will make today is centered on the 
opportunities and challenges that are currently occurring to a 
group of ports in Louisiana we call the Coastal Energy Ports.
    These ports are very unique in that they do not ship 
containers, corn, steel or ore, but what they do ship is 
personnel, supplies, platforms, equipment and numerous other 
sophisticated and complex machinery components to and from the 
offshore drilling rigs and production platforms in the Gulf. To 
be more precise, these energy ports facilitate the day to day 
operations of a multibillion dollar industry by delivering the 
necessary supplies and equipment needed to explore, drill and 
produce a large percentage of our oil and gas consumed by our 
Nation.
    Just to detail the magnitude of the type of infrastructure 
I'm talking about these floating and fixed structures are 
comparable to thousands of small cities scattered across the 
thousands of square miles of the Gulf of Mexico which require 
daily support from these land base facilities.
    The oil and gas industry in the Gulf of Mexico started in 
the 1940s in the shallow waters along our coast. In the 
following few decades the industry continued to move farther 
and farther out on the shelf. As you are well aware has 
expanded into waters over 10,000 feet deep and 100 plus miles 
offshore.
    As the drilling rigs and production platforms move farther 
and farther, the size and weight of the equipment required to 
explore, drill, fabricate and install and produce for our 
Nation so critically depends on, keeps getting bigger and 
bigger.
    The first slide I will share with you today depicts the 
different types of production facilities that the industry has 
used in the Gulf over the past 60 years. As you can see 
everything is getting bigger and bigger. Unfortunately as this 
oil and gas infrastructure has grown in size and weight, our 
ports, more specifically the coastal energy ports, have not 
been able to keep up primarily due to the insufficient water 
depths that navigate to and from as well as within the ports.
    I would like to emphasize that in the 1950s, 1960s and 
1970s, almost every piece of iron floating and working in the 
Gulf of Mexico was built and serviced by the ports along the 
Gulf Coast. However today, industry experts will tell you that 
the number is closer to 60 to 70 percent and getting worse. The 
30 to 40 percent drop off is directly related to the slow and 
continuous restrictions in our access channels to the Gulf 
which are the main arteries that supply the lifeblood to the 
heart of our local economy and our Nation's energy supplies.
    Being capable or incapable of servicing the deep water 
growth in the Gulf will be the No. 1, most vital component to 
the economic future of our Nation's energy ports. Without 
deeper channels we cannot and will not survive.
    Slide 2.
    The next slide depicts the 22 coastal ports connected to 
the Gulf in Louisiana. These ports are divided into 3 
geographical regions with the Western and Eastern regions 
centered around the Calcasieu and Mississippi River 
respectively.
    The next slide which is the Central region gives us an in 
depth look at what we refer to as the Coastal Energy Port 
corridor. It extends from Freshwater Bayou in the southwest 
portion of the State to the Barataria Waterway in the southeast 
portion of the State.
    This corridor includes the Ports of Vermillion.
    The Port of Delcambre.
    The Port of Iberia.
    The Port of West St. Mary.
    The Port of Morgan City.
    The Port of Terrebonne.
    I'm going to mess it up. Is it the Port of Iberia?
    The Port of Morgan City.
    The Port of Terrebonne.
    The Port of Grand Isle.
    The Port of Fouchon.
    Although the previous slides show the robust industrial 
activity currently going on within our coastal energy ports it 
is very hard to illustrate the magnitude of what these 9 
coastal energy ports mean to our national economy and the 
growth potential if they had the proper channel depth to fully 
service the channels of the current industry operating in the 
Gulf and even more so for the industry on the horizon that will 
be operating in the Gulf in the future.
    If there's a baby boomer message I'd like to get across 
today in this discussion it would be that our grandfather's 
channels are not deep enough for our children's offshore oil 
and gas industry.
    Whereby a 12 foot draft was adequate for the GIWW 
Freshwater Bayou Commercial Canal and Barataria Waterway when 
they were dug in the 1950s and 15 and 20 and 25 foot draft were 
OK for Terrebonne and Morgan City and Fouchon, respectively, 
when they were dug in the 1960s. They are not adequate for the 
industry of today. If nothing is done it will cause detrimental 
effects on the growth of the industry of the future.
    All of the mainline from Freshwater Bayou to Barataria 
Waterway need to be a minimum of 20 feet deep and Fouchon needs 
to be somewhere between 35 and 50 foot deep to adequately 
handle the industry today and the industry of the future.
    Studies have shown that the Coastal Energy Port corridor is 
home to nearly 40,000 direct jobs and 36,000 indirect jobs in 
and around the area where they are located. Economists have 
estimated that a billion and a half dollars in construction 
projects have been lost in the last few years due to 
insufficient water depth. Estimates show that with sufficient 
water depth we could see 35 to 40 percent increase in direct 
jobs and 14,000 indirect jobs throughout ports in surrounding 
areas.
    With these increases direct benefits within--with these 
increases direct benefits not only to the respective regions, 
the investment in deeper channels would also benefit the Nation 
as a whole by reducing our dependence on foreign oil, reducing 
our trade deficit, reducing the flow of money to some unstable 
and unfriendly areas of the world and providing a more reliable 
and cheaper energy supply at home that could reverse the 
decline in domestic manufacturing jobs that have occurred for 
more than a generation.
    In the current projection for deep water exploration in the 
Gulf are accurate this State and this Nation needs to get 
together and figure out a way to get these channels dredged and 
maintained and to do so in haste. If we don't then we'll once 
again miss the opportunity of a lifetime.
    It can't go without saying that there has been some 
positive steps that have been taken by Congress and the Federal 
delegation in our State in the past few years toward the 
deepening of the channel for the Ports of Iberia, Terrebonne 
and Fouchon. But there is much left to be done in getting these 
channels dredged deeper and properly maintained and to 
interconnect all the other 6 coastal ports into the system. I'm 
hoping that the attention given to this critical infrastructure 
issue by this committee today is another step forward in moving 
our coastal energy ports closer to the size and depth required 
for the industry they support.
    Once again I would like to thank you for allowing me to 
speak today on behalf of these coastal energy ports.
    [The prepared statement of Mr. Malbrough follows:]
Prepared Statement of Mr. Oneil Malbrough, CB&I, Directgor of Coastal, 
                            Ports and Marine
    1First, I'd like to thank Senator Landrieu and the Committee for 
allowing me to speak at this hearing and to talk about a critical issue 
that our local Coastal Energy Ports have been wrestling with for more 
than a decade. My name is Oneil Malbrough and I am the Director of the 
Coastal, Ports and Marine Group for CB&I. The Coastal, Ports and Marine 
Group is the Engineering and Construction Management Group within CB&I 
that specializes in the Planning, Engineering and Design of Ports, 
Channels, Port Infrastructure and Marine Terminals in many different 
parts of the world.
    The presentation I will make today is centered on the Opportunities 
and Challenges that are currently occurring to a group of Ports in 
Louisiana, we call the ``Coastal Energy Ports''. These Ports are very 
unique in that they do not ship containers, or corn, or steel, or ore; 
but what they do ship is personnel, supplies, platforms, equipment and 
numerous other sophisticated and complex machinery components to and 
from offshore drilling rigs and production platforms in the Gulf of 
Mexico. To be more precise, these Energy Ports facilitate the day to 
day operations of a multi-billion dollar industry by delivering the 
necessary supplies and equipment needed to explore, drill, and produce 
a large percentage of the oil and gas consumed by our nation. Just to 
detail the magnitude of the type of infrastructure I am talking about, 
these floating and fixed structures are comparable to thousands of 
small cities scattered across thousands of square miles of the Gulf of 
Mexico which require daily support from these land based facilities.
    The offshore oil and gas industry in the Gulf of Mexico started in 
the 1940's, in the shallow waters along our coast, and in the following 
few decades, the industry continued to move farther and farther out on 
the shelf and now, as you are well aware, has expanded into waters over 
10,000 feet deep and 100+ miles offshore. As the drilling rigs and 
production platforms move farther into the deeper waters of the Gulf of 
Mexico, the size and weight of the equipment required to explore, 
drill, fabricate, install and produce the oil and gas that our nation 
so critically depends on, keeps getting bigger and bigger.
    (Slide 1) The first slide I will share with you today depicts the 
different types of production facilities that the industry has used in 
the Gulf of Mexico over the pass 60+years. As you can see everything is 
getting bigger and bigger. Unfortunately, as this oil and gas 
infrastructure has grown in size and weight, our Ports, more 
specifically the Coastal Energy Ports, have not been able to keep up, 
primarily due to the insufficient water depths that navigate to and 
from, as well as within our Ports.
    I would like to emphasize that in the 1950's, 60's and 70's almost 
every piece of iron floating and working in the Gulf of Mexico was 
built and serviced by the Ports along the Gulf Coast. However today, 
industry experts will tell you that the number is closer to 60--70 
percent and getting worse. This 30 percent to 40 percent drop off is 
directly related to the slow and continuous restrictions on our access 
channels to the Gulf of Mexico, which are the main arteries that supply 
the ``life blood'' to the heart of our local economy and our nation's 
energy supplies. Being capable or incapable of servicing the Deepwater 
Growth in the Gulf of Mexico will be the number one most vital 
component to the economic future of our nation's energy ports. Without 
deeper channels we cannot and will not survive!
    (Slide 2) The next slide depicts all the Coastal Ports in Louisiana 
(22) connected to the Gulf of Mexico. These Ports are divided into 
three (3) geographical regions, with the Western & Eastern Regions 
centered around the Calcasieu River and Mississippi River, 
respectively.
    (Slide 3) This next slide, which is in the Central Region, gives an 
in depth look at what we refer to as our Coastal Energy Port corridor. 
It extends from Freshwater Bayou, in the southwest portion of the 
State, to the Barataria Bay Waterway, in the southeast portion of the 
State. This corridor includes the following Ports:

                  (1) Port of Vermillion (including Intracoastal City) 
                (Slide 4, 5, and 6)
                  (2) Port of Delcambre
                  (3) Port of Iberia (Slide 7 and 8)
                  (4) Port of West St. Mary
                  (5) Port of Morgan City (Slide 9)
                  (6) Port of Terrebonne (Slide 10 and 11)
                  (7) Lockport/Larose Marine Industrial Complex
                  (8) Port of Grand Isle (Slide 12)
                  (9) Port Fouchon (Slide 13, 14, and 15)

    Although the previous slides show the robust industrial activity 
currently going on in our Coastal Energy Ports, it's very hard to 
illustrate the magnitude of what these 9 Coastal Energy Ports mean to 
our national economy and the growth potential if they had the proper 
channel depths to fully service the demands of the current industry 
operating in the Gulf today and even more so for the industry on the 
horizon that will be operating in the Gulf in the very near future.
    If there's a ``baby boomer'' message that I'd like to get across 
today in this discussion, it would be that ``Our Grandfather's channels 
are not deep enough for our Children's offshore oil and gas industry''. 
Whereby a 12' draft was adequate for the GIWW, Freshwater Bayou, 
Commercial Canal and Barataria Bay Waterway when they were dug in the 
50's and 15', 20' and 25' draft were OK for Terrebonne, Morgan City and 
Fouchon respectively when they were dug in the 60's, they are not 
adequate for the industry of today and if nothing is done, it will 
cause detrimental effects on the growth of the industry of the future. 
All of the mainline channels from Freshwater Bayou to Barataria Bay 
Waterway need to be at a minimum of 20' deep and Port Fouchon needs to 
be 35'-50' deep to adequately handle the industry today and the 
industry of the future.
    Studies have shown that the Coastal Energy Port Corridor is home to 
nearly 40,000 direct jobs and impacts an additional 36,000 indirect 
jobs in and around the areas where they are located. Economists have 
estimated that > $1.5B in construction projects have been lost in the 
last few years due to insufficient water depths. Estimates show that 
with sufficient water depths, we could see a 35--40 percent increase in 
direct jobs (15,000 jobs) and 14,000 additional indirect jobs at our 
ports and the surrounding areas.
    While these increases will directly benefit their respective 
regions, the investment in deeper channels will also benefit the nation 
as a whole by:

   Reducing our dependence on foreign oil,
   Reducing our trade deficit,
   Reducing the flow of money to some unstable and unfriendly 
        areas of the world, and
   Providing a more reliable and cheaper energy supply at home 
        that could reverse the decline in domestic manufacturing jobs 
        that has occurred for more than a generation.

    If the current projections for Deepwater Exploration in the Gulf of 
Mexico are accurate, this State and this Nation needs to get together 
and figure out a way to get these channels dredged and maintained and 
to do so in haste. If we don't then we'll let this ``once in a 
lifetime'' opportunity pass us by.
    It can't go without saying that there has been some positive steps 
that have been taken by the Congress, our Federal Delegation and our 
State in the past few years toward the deepening of the channels for 
the Ports of Iberia, Terrebonne and Fouchon, but there is much left to 
be done in getting these channels dredged deeper and properly 
maintained and to interconnect all the other 6 coastal ports into the 
system. I am hoping that the attention given to this critical 
infrastructure issue by this committee today is another step forward in 
moving our Coastal Energy Ports closer to the size and depth required 
by the industry they support.
    (Slide 16) Once again, I would like to thank you for allowing me to 
speak to you today on behalf of our Coastal Energy Ports.

    The Chair. Thank you. Excellent testimony.
    Mr. Chiasson.
    Go ahead and take a minute to set up.
    Oh, well, we'll try to get it unstuck. But why don't you go 
ahead.
    Do you want to do it by slides or we'll follow here?

   STATEMENT OF CHETT CHIASSON, EXECUTIVE DIRECTOR, GREATER 
             LAFOUCHE PORT COMMISSION, GALLIANO, LA

    Mr. Chiasson. There's some right there.
    The Chair. Go ahead. You can begin and if there's--Bubba 
will find them for me.
    Mr. Chiasson. At the end of it there's some slides. Oh, 
there you go. That's it right there.
    The Chair. OK, got it.
    Mr. Chiasson. We have it.
    The Chair. OK.
    Mr. Chiasson. OK.
    Good afternoon, Chairwoman Landrieu. I very much appreciate 
the invitation to appear before you today and as always for 
your continued leadership.
    Senator, I know you know Port Fourchon. That it services 90 
percent of all the deep water activity in the U.S. Gulf of 
Mexico, Louisiana offshore oil port and nearly 20 percent of 
the Nation's oil supply. I know that if I'm appearing before 
you anywhere at any time I better mention the critical need to 
complete the remaining portions of Louisiana Highway 1, the 
only landside link to Port Fourchon and the rest of the world 
and the critical need for the Federal Government, in this case 
the Corps of Engineers, to maintain and deepen, where needed, 
the channels and our Nation's ports.
    Port Fourchon and LA 1 are prime examples of the need to 
maintain our Nation's infrastructure to support a variety of 
economic activities in our country.
    But today I'd like to focus my comments on the role that 
the Federal Government plays in offshore energy development of 
all kinds through its leasing program, development of its 5 
year plan and the like. At the end of the day nothing else 
matters without the Federal Government promoting and 
effectively managing offshore energy development. All of the 
economic activities that fuels our local and national 
economies, all of the jobs, all of the energy independence we 
seek to achieve, all of the benefits that we see now and hope 
to continue well past any of our lifetimes, start when an 
effective, consistent, reliable offshore leasing program.
    I'd like to direct your attention to the 3 photographs that 
I brought with me today.
    The first one is an aerial photograph on the left side of 
the slide of Port Fourchon in the early 1990s, in 1993 before 
the Deep Water Royalty Relief Act was passed in 1995.
    The second photograph is of the port today. This was taken 
just this past January. It's already a little out of date. We 
are growing just that fast.
    The third, if we can move it to the next?
    Oh, OK, sorry.
    Oh, OK.
    The third is just a map depicting what we're looking at 
into the future. You can see an extra slip out there and moving 
forward into the future to develop more to service the oil and 
gas industry.
    With this newest expansion we will grow the port by an 
additional 300 lease able acres over our current 12 hundred 
leased acre footprint today. These 3 photographs, spanning 
roughly 30 years, illustrate the growth of Port Fourchon as a 
direct result of energy exploration and development in the 
Gulf. Our growth, of course, is directly linked to the 
investment by a multitude of companies involved in offshore 
energy, exploration and development which, of course, is 
impacted by the Federal Government both positively and 
negatively.
    You don't need to look back any further than 1995 when 
Congress passed the Royalty Relief Act to see the positive 
effect of Federal policy in fostering the growth in offshore 
energy development that we experience today.
    On the flip side of that, we have the tragedy of the Deep 
Water Horizon incident, the likes of which I pray we will never 
see again which resulted, as you well know, in the offshore 
moratorium and establishment of a new permitting regime which 
while necessary and I presumed well intended, took a long time 
to develop and implement both of which caused additional 
economic hardship and delay in further investment, seriously 
impacting the economic growth that comes with it.
    Now our industry is as resilient as it is innovative. Thus 
we have not only rebounded since Mercando, but we are looking 
toward the future once again. By looking, I mean investing tens 
of billions of dollars across this industry.
    As speaking of one of those investors on behalf of my port, 
investing public funds, our industry needs to have confidence 
that the investments made in domestic offshore energy 
production will not be overly impeded by Federal actions or 
inactions, as the case may be, and that our Nation's domestic 
energy policy, now and over the next century, will continue to 
sustain industry investment of all types today, tomorrow and 
years to come.
    Senator, I'd like to provide you with one recent example 
that's really not on the headlines right now, but I assure you 
will have the very kind of positive benefits that our industry 
looks for with respect to the Federal Government's role in 
offshore energy development.
    I'm talking about the U.S. and Mexico Transboundary 
Agreement. This agreement is intended to facilitate the 
development of oil and gas reservoirs that cross the 
International Maritime Boundary between our two countries in 
the Gulf of Mexico. That means that additional work is coming 
for U.S. companies in the oil field service and supply industry 
and for Port Fourchon and other oil service ports in the U.S. 
Gulf. That's great news.
    Along those lines we now know that BOEM currently is 
requesting comments on the development of the 5-year plan to 
take effect in 2017. As someone who sees, literally on a daily 
basis, the positive results of Federal lease sales, as someone 
who is currently planning in investing in Gulf activity over 
the coming decades, I can state that a 5-year plan must present 
a robust OCS leasing program, promote expanded access in areas 
of the Gulf and in Alaska currently available for leasing and 
promote new areas for lease off our coastlines as well.
    I can tell you as a Port Director for the most important 
offshore service port in our country I have had a number of 
conversations with port directors or other community leaders 
around the country interested in how and what makes Port 
Fourchon tick and so have the vessel companies and other 
service companies that work at Port Fourchon and elsewhere in 
the Gulf. Communities as well as small and large businesses are 
preparing to invest in new areas where offshore energy activity 
will be permitted. I don't just mean oil and gas activities, 
renewable energy as well. We have one local company at 
Lafourche Parish called Michael Offshore that is actually 
certified to do this work and has done some on the Atlantic 
Coast.
    For Port Fourchon to continue to grow and have a successful 
future creating jobs continued Gulf of Mexico lease sales are 
critically important. That is the future of our industry. 
Robust lease sales have the ability to energize oil and gas 
service companies that suppliers and so on throughout the 
country.
    Port Fourchon should be seen as an example of what could 
happen in areas along the east and west coast and what must 
continue in our own backyard if these areas would be available 
for conventional and renewable energy development.
    Thank you.
    [The prepared statement of Mr. Chiasson follows:]
   Prepared Statement of Chett Chiasson, Executive Director, Greater 
                 Lafouche Port Commission, Galliano, LA
    Good afternoon Chairwoman Landrieu and Members of the Committee. I 
appreciate the opportunity to appear before you today. My name is Chett 
Chiasson, and I am the Executive Director of the Greater Lafourche Port 
Commission, otherwise known as Port Fourchon.
    With this testimony, I hope to impress upon Members of the 
Committee and the federal officials appearing here today several 
points: the importance of Port Fourchon to the offshore oil and gas 
industry; the contribution that Port Fourchon therefore makes to the 
national economy; and the importance of robust oil and gas lease sales 
in the Gulf of Mexico, to not just the Gulf economy and not just with 
respect to offshore fossil fuel development, but to our national 
economy, and to sustain long term, offshore energy development from all 
available sources that our Country intends to pursue.
    By way of background, The Greater Lafourche Port Commission, a 
political subdivision of the state of Louisiana, facilitates the 
economic growth of the communities in which it operates by maximizing 
the flow of trade and commerce. We do this to grow our economy and 
preserve our environment and heritage. The Port Commission exercises 
jurisdiction over the Tenth Ward of Lafourche Parish, south of the 
Intracoastal Waterway, including Port Fourchon and the South Lafourche 
Leonard Miller, Jr. Airport. The Port Commission has been in existence 
since 1960 and its 9 member Board of Commissioners is the only elected 
Port Commission in the State of Louisiana.
    Port Fourchon is located on the Gulf of Mexico, near the mouth of 
Bayou Lafourche, and it is the only Louisiana port directly on the Gulf 
of Mexico. Although more than 500 million barrels of domestically 
produced and imported crude oil per year are transported via pipelines 
through the Port, Port Fourchon does not handle any bulk oil and gas 
per se. Rather, we are an intermodal offshore supply port. More than 
250 companies utilize Port Fourchon in servicing offshore rigs in the 
Gulf of Mexico, carrying equipment, supplies and personnel to offshore 
locations. In terms of service, Port Fourchon's tenants provide 
services to 90 percent of all deepwater rigs in the Gulf of Mexico, and 
roughly 45 percent of all shallow water rigs in the Gulf. 80 percent of 
all Gulf oil now comes from deepwater Gulf of Mexico operations. In 
total, Port Fourchon plays a key role in nearly 20 percent of the 
nation's entire oil supply.
    A study of the economic impact of Port Fourchon to the Nation 
determined that more than $63 billion in total value of oil and gas are 
associated with Port Fourchon. A more recent study published by the 
U.S. Department of Homeland Security's NISAC Lab in collaboration with 
the NIMSAT Institute, entitled the Louisiana Highway 1/Port Fourchon 
Study, found that a disruption of access to Port Fourchon for a 90 day 
period could have a nearly $8 billion impact to the Nation's GDP. While 
each report was intended for different purposes, I share this 
information with the Committee to illustrate the need for continued and 
sustained progress in developing all of our offshore energy resources, 
both conventional and non-conventional. Port Fourchon is the epicenter 
of offshore oil and gas activities, and the companies in and around 
Fourchon, and their technologies and innovations developed as a result 
of these activities, will not only continue to sustain future offshore 
domestic oil and gas activities, but will foster growth in our budding 
offshore renewable energy industry as well.
    For Port Fourchon to continue to grow and have a successful future 
creating jobs throughout the economy and facilitating development for 
our community, continued Gulf of Mexico Lease sales are critically 
important. That is the future of the oil and gas industry. Robust lease 
sales have the ability to energize oil and gas service companies', 
their suppliers and their suppliers' suppliers throughout the country, 
who are planning for future development. It facilitates critically 
needed investment by entities that service these offshore activities, 
which has a positive ripple effect throughout the national economy.
    According to the economic impact study to which I eluded earlier, 
Port Fourchon supports more than 8,000 direct jobs. These are good 
paying jobs, in which someone with a high school diploma can start out 
making $50,000 per year. If that person wants to work on an offshore 
supply vessel or tugboat company, they can start out as a deckhand and 
work their way up to Captain within 5 years, earning a six figure 
income. The Houma-Thibodaux MSA maintains one of the lowest 
unemployment rates in the country, at about 3.7 percent, well below the 
National average. If a man or woman is willing and able to work, they 
typically have a job. And I know this is the case in other Gulf 
communities, and in areas around the country where new discoveries of 
onshore energy resources have occurred, such as in North Dakota, or 
eastern states such as Pennsylvania, West Virginia and Ohio.
    A very recent example of the role that the federal government can 
play in fostering continued economic development in the US, coupled 
with achieving further energy independence, is the U.S. Mexico 
Transboundary Agreement. This agreement is intended to facilitate the 
development of oil and gas reservoirs that cross the international 
maritime boundary between the U.S. and Mexico in the Gulf. The 
Department of Interior signed an agreement with Mexico in 2012, and 
implementing legislation was enacted by Congress at the end of last 
year and signed into law by President Obama. Just about a month ago, at 
the end of May, BOEM awarded the first leases--three to be exact, in an 
area of the Gulf subject to the Transboundary Agreement. Without this 
Agreement, the ability to develop this area--and more importantly, what 
US laws would apply and what US companies would be able to participate 
in this new activity, were uncertain at best. Thus the ratification of 
this agreement will have significant economic benefits to US companies 
who participate in the oil and gas industry. And I assure this 
Committee, as I know for a fact, additional work is coming for Port 
Fourchon and other oil service ports in the U.S. Gulf as a result. This 
is good news and congratulations to all in our federal government who 
achieved this goal.
    The Bureau of Ocean Energy Management (BOEM) is currently 
requesting comments on the development of the next five year plan for 
offshore energy development, to take effect in 2017. As someone who 
sees, literally on a daily basis, the results of federal lease sales, 
and as someone who is currently planning and investing in Gulf activity 
over the coming decades, I can state that a five year plan must present 
a robust OCS leasing program, promote expanded access in not only areas 
of the Gulf and in Alaska, but expanded areas off our coastlines as 
well. I can tell you that as the Port Director for the most important 
offshore service port in our Country, I have had a number of 
conversations with port directors or other community leaders around the 
country, interested in how and what makes Port Fourchon tick. So have 
the vessel companies and other service companies that work at Fourchon 
and elsewhere in the Gulf. These aren't just academic conversations. 
Communities and small and large businesses are preparing to invest in 
areas where offshore energy activity is permitted. And I don't mean 
just oil and gas. One of the leading service companies working today on 
offshore wind development on the East Coast is a liftboat company in 
Lafourche Parish that was started in the 1960's to work the offshore 
oil fields, and to this day continues to work on offshore oil and gas 
projects in the Gulf. But it now owns three new liftboats that are 
certified to work on offshore wind projects as well as oil and gas. 
Thus it only makes sense that those companies involved in offshore 
mineral development will play similar roles in offshore renewable 
energy development, as we're seeing that already.
    In conclusion, while the effects of the BP oil spill, the 
subsequent moratorium and the new permitting regime still linger, our 
industry is as resilient as it is innovative, and thus we have not only 
rebounded, but are looking towards the future. And by ``looking'', I 
mean investing tens of billions of dollars across this industry. But 
the industry needs to have confidence that the investments made in 
domestic offshore energy production will not be overly impeded by 
governmental regulations, and that our Nation's domestic energy policy 
will continue to sustain investment of all energy types. The response 
by industry in recent government lease sales is certainly one indicator 
of that confidence, and the significant sums of dollars then invested 
as part of those sales.
    Port Fourchon should be seen as an example of what could happen in 
areas along the East and West Coasts if these areas would be available 
for conventional and renewable energy development, as well as continue 
to explore in areas of the Gulf and Alaska already open for 
development. Billions of dollars of investment throughout the country, 
low unemployment rates, high paying jobs, more revenue for our federal 
and local governments, and making great strides toward energy 
independence.
    Again Senator Landrieu and Members of the Committee, I appreciate 
the opportunity to appear before you today, and I would be happy to 
answer any questions that the Committee may have.

    The Chair. Thank you all very much for that excellent 
testimony.
    Let me begin, if I could, Mr. Satterlee, with you.
    In your testimony you said that of the off limit OCS areas 
Shell may be particularly interested or focused on the Eastern 
Gulf of Mexico and the Mid Southern Atlantic areas. Can you 
express why Shell might be interested in those areas and what 
potential do you all see in the Eastern Gulf and Mid South 
Atlantic areas?
    Mr. Satterlee. Yes.
    Let me just preface it by saying that we are in a quiet 
period so I'm limited on forward looking information.
    The Chair. Correct.
    Mr. Satterlee. Some of the information is proprietary. 
But--and you asked a question earlier of the government 
representatives concerning seismic data. There is quite a bit 
of seismic data in the Atlantic and also in the Eastern Gulf of 
Mexico.
    In the Atlantic though it's more than 3 decades old and it 
does not go very far deep, in deep water. So it only goes out 
to about maybe, 50 miles out. So we have reprocessed some of 
that data. What we see is promising.
    Although we certainly prefer to have new seismic data 
before we go to a lease sale what we see so far is promising.
    The Chair. What would be--can you just explain for the 
record and not in too, too much technical detail, but explain 
for our audience that may not know the activities that go along 
with seismic? How would you explain the difference in 
technology 20 years ago to today? How much more accurate is 
some of that?
    There's some--that's 1.
    How much more accurate, generally, is it by industry 
standards?
    Are there any--there are some legitimate criticisms of some 
impacts that seismic could have on marine life, etcetera. Could 
you just comment about the state of seismic today in the 
industry, generally?
    Mr. Satterlee. I'm not an expert in that area. So I would 
like to get back to the committee on a more detailed answer.
    Mr. Satterlee. But there's really two areas where seismic 
technology has been enhanced over the last several decades.
    One, in the acquisition of the seismic. So you've got more 
precise air guns and more precise receivers.
    Then probably even more so is in the interpretation and the 
work of that data to get it into a format where you can 
interpret it.
    So the limitation for the seismic in the Atlantic is both 
because it's old, but also because it has not been acquired in 
deeper water. But also the spacing of the lines is pretty far 
apart. So we'd like to see much closer spacing of lines so we 
can make a better interpretation.
    With regard to marine mammals the mitigation measures that 
we have in place today really protect the marine mammals, 
marine animals. So we understand that there's quite a bit of 
concern, but there's also quite a bit of science and 
environmental work going on right now to make sure that we do 
not harm those animals.
    The Chair. OK.
    You testified also about some of the performance based 
regulatory oversight programs that Shell believes would be most 
effective. Can you give an example or 2 of the kind of 
performance based regulatory programs that would be?
    You all drill all over the world.
    Mr. Satterlee. Correct.
    The Chair. So you might answer this by giving us, giving 
the committee, 1 or 2 examples of what other Nations do that 
have high environmental standards or at least standards 
equivalent to ours and maybe a more efficient system that we 
could look to as a model.
    Mr. Satterlee. OK.
    The crux of the matter is that the regulatory process works 
very slowly here in the United States. It's a good system, but 
it takes anywhere from 3 to 7 years to get a new set of 
regulations in place. Our move into deep water and the 
technology development has moved much quicker than that.
    So basically, the regulatory agencies just have not been 
able to keep pace. That's no fault of our own. It's really the 
process that we have.
    So what a performance based system enables an agency to do 
is to move much faster than their own regulatory development 
process. It can be managed through industry standards. So 
industry standards can be done. Then our industry will be 
subject to those standards because they can be incorporated and 
made requirements.
    As far as other Nations I think Norway and Australia have 
both excellent systems. To their credit BSEE and BOEM are very 
much involved in an International Regulators Forum which 
compares data and also it compares regulatory systems. So I 
know they're looking at types of regulatory reforms.
    But I will say that the SEMS program that BSEE has in place 
right now is a very good example of a performance based system.
    The Chair. Great.
    Mr. Leimkuhler, could you add to that as a--you know, here 
you have a large, international, public company. You all are 
the largest private, you know, operator. What perspective would 
you like to share on this potentially improved regulatory 
framework?
    Mr. Leimkuhler. I would second what Ken said, a more of a 
performance standard where in the regulations you describe the 
risks that we are challenged to meet and then we come up with a 
set of operating protocol procedures, SEMS plans, to actually 
meet that risk rather than a more prescriptive approach.
    I think a good example of that would be on blow out 
preventer testing.
    Right now we're required to do almost a full overhaul of 
the BOPs every time they come to surface. So at LLOG we're in a 
development program. I've got sequential completions lined up 
where I'm going to do the completions for that facility I 
showed you on the slide.
    I've got 5 wells ready to complete. Each completion takes 
about 30 days. But every time I bring my BOP stack to the 
surface I have to fully break it down. That's 14 days worth of 
work when I'm only using it for 30.
    There is a sweet spot about 100 to 150 days where your BOP 
is extremely reliable. You can make an argument it's actually 
from a risk based perspective better to leave it down and hop 
the BOP from well to well. BSEE is starting to be amenable to 
looking at those types of proposals, but in response to the 
current regulations of the new rig I have coming into the Gulf, 
we have spent an additional $30 million to put a second BOP on 
so that we can efficiently operate and do those 5 wells back to 
back to where I'll be cycling those BOPs from the surface to 
the sea floor.
    So that's a pretty direct impact.
    The Chair. That's a very good example of a regulation that 
might be an over reach and not necessary. It may, eventually, 
do more harm than good. We've got to let the engineers figure 
that out.
    Mr. Leimkuhler. Correct.
    The Chair. Let me ask you, Mr. Malbrough, really try to 
help us get on to this record the gap between the dredging, not 
just the dredging depths from 12 to 20 or 15 to 25, but the 
financial gap that we're looking at.
    I don't know if you have the data. You talked about the 9 
ports that you might have data for. But there are, of course, 
upwards, I think, of maybe 20 energy ports in the coast from 
Alabama to Texas.
    But let's just focus either on the 9 that you're most 
familiar with or some subset of those that you're comfortable 
with to give this committee some information about how short we 
are on our dredging dollars. So you could take it from Port 
Fourchon.
    What is your dredging requirement annually?
    What do you receive from the Federal and State government?
    What is the delta?
    But I'm looking for a total amount from the 9 energy ports 
that you had in your testimony, roughly?
    Mr. Malbrough. When we added up the annual requirements 
that the corps had projected, if I'm not mistaken, with the 
exception of Morgan City the $10 million to $12 million that is 
allocated now is probably adequate.
    Morgan City because it's inside the Atchafalaya River and 
it has a significant amount of sediment moving down there by 
itself is $15 million.
    So we have always talked about somewhere between $25 and 
$30 million a year would sufficiently dredge the channels to 
their existing depths.
    The Chair. To those 9 ports.
    Mr. Malbrough. To maintain.
    The Chair. To maintain those 9.
    Mr. Malbrough. Those 9.
    The Chair. Ports.
    How much do you receive from either the State or the 
Federal Government?
    Mr. Malbrough. It's usually around $10 to $12 million 
depending upon--last year you all had that supplemental, I 
don't know what you call it, the supplemental.
    The Chair. So you're basically getting half of what you 
need?
    Mr. Malbrough. That's correct.
    The Chair. Roughly, for those ports.
    Mr. Malbrough. We're not yet--that's correct.
    When you--the idea is there some people--when people miss a 
year and then they catch them up a year or 2 later. So it's a 
matter of having about half as much money to do the job that 
they need. The idea is that we would need double that at this 
time to keep them to their authorized depths today.
    The Chair. Which one of you testified that the lack of this 
relatively small amount of money. I mean as the Federal 
Government's budget goes, $25 to $30 million is significant for 
us, but not significant.
    The loss of jobs, one of you testified how many jobs have 
we lost or what contracts have we lost. Was that you, Neil?
    Mr. Malbrough. Yes.
    The Chair. Can you repeat that, please?
    Mr. Malbrough. But that was not because of the dredging 
cycle that was because of the lack of being able--those local 
contractors are not able to even bid on projects because of 
their inadequate draft depth to show the delivery of some of 
the big platforms.
    The Chair. You said we lost, according to your testimony, 
about a billion and a half dollars?
    Mr. Malbrough. That's correct. Actually it was three and a 
half years now.
    But in the meantime the unauthorized--the lack of O and M 
dredging is in every single channel in that 9 coastal ports, 
except for the one. The 6-months after the Corps finishes 
dredging all of those channels are inadequate. OK?
    There is not one of those channels with the exception of 
Port Fourchon, OK. Port Fourchon is the deepest. But it's 
closer to the Gulf and has a minimum amount.
    The Chair. Oh, I see. So let's be clear.
    So you're saying even with the--we're short $10 to $12 
billion--million a year to keep these channels dredged to their 
authorized, but their authorized is still not sufficient to 
attract the 1.5----
    Mr. Malbrough. Five billion dollar reconstruction price.
    The Chair. Five billion dollars.
    So what we want to get into this committee for the staff is 
the delta of the dredging to the authorized level annually for 
all energy ports in the Gulf.
    Then what the cost would be to get them all up to your 
children's deep water, not your grandfather's deep water energy 
industry.
    Mr. Malbrough. That's correct.
    The Chair. That's what we need for this.
    Chett, do you want to--I mean, Mr. Chiasson, do you want to 
add anything?
    Mr. Chiasson. You can call me Chett, Senator.
    The Chair. OK.
    [Laughter.]
    Mr. Chiasson. I'd just like to say that, just kind of 
echoing what Oneil was talking about when it comes to dredging 
of Port Fourchon. We're very happy to say that the Corps does 
its job for us. Fortunately enough for Port Fourchon we don't 
really have a siltation issue unless we have a storm that comes 
by. But we don't have sediment coming down by Lafourche to 
deposit into our channel.
    So we're fortunate on that fact. But we have, probably, 
every 3 years a million and a half or so dollars--what was 
that, to $3 million that's spent in our channel. When we talk 
about Port Fourchon, we're talking about deepening to continue 
to meet the demand for the industry.
    We already service about 90 percent of all the deep water 
activity in the Gulf, like I mentioned. In order for us to 
continue to do so we need to do whatever it is we possibly can 
to get, you know, at least to 35 feet if not more to be able to 
handle the size vessels and for the companies, the vessel 
companies like Mr. Ramsay here, to be able to build those 
vessels to the capabilities that they really need in the U.S. 
waters.
    The Chair. Mr. Ramsay, let me turn it over to you because I 
think this, this frame, is so important for this committee to 
really understand and trying to get this onto the Congressional 
record.
    The offshore industry, which is serviced by Port Fourchon 
primarily in the Gulf, but there are a few other ports that 
contribute, Corpus Christi in Texas and a few others have 
needs, have infrastructure needs. $20 million, $30 million 
annually together. We're going to try to get that figure 
because it's important to get the official figure.
    The reason I press this is because the industry itself 
generates the tax dollars for the Federal Government. I believe 
of somewhere between $8 and $10 billion a year. I want the 
staff to give me the last 3 years right now. You can Google it. 
The last 3 years of offshore production that's gone to the 
Federal Government. We're going to get that on this record 
right now.
    But it's somewhere between $8 and $10 billion. So my 
question to you, Mr. Ramsay, is do you think the Federal 
Government can afford to spend a few million dollars supporting 
the ports that generate the $10 billion a year for the----
    Is there any reason, as a business person, that you could 
even see or surmise that the Federal Government would not want 
to make that decision?
    Mr. Ramsay. Madame Chair, it's not understood at all by 
Americans why the Federal Government would not want to invest 
this money into our industry. It makes no sense to us at all.
    The Chair. Because again, the industry generates, we think, 
we're going to get the exact numbers in just a minute. But tell 
me about, again, about what your industry not only employs, but 
other companies like yours?
    Mr. Ramsay. You know, as I said earlier, we've got 
currently 4 vessels under construction here and in Louisiana 
alone that's, you know, about a $90 million investment alone 
just in construction costs of vessels, the shipyards that we're 
using collectively employ 700 people, conservatively. You know, 
those are good paying jobs, you know, great skilled labor jobs.
    So and our vendors stretch all across the entire United 
States. We're buying equipment from, you know, folks in many 
different States.
    Our crews largely come from the Gulf Coast, but many of our 
officers fly in for crew changes. We've got, you know, 
engineers and captains that come from as far away as California 
or Maine to catch a crew change for our vessels. So----
    The Chair. They take those paychecks back to where?
    Mr. Ramsay. Back to their home States.
    The Chair. To Maine and to California.
    Mr. Ramsay. Exactly.
    Mr. Leimkuhler, as the largest, as one of the largest, 
independent can you talk about why the Federal Government would 
not want to make this investment of money that's generated by 
the industry so that the industry could continue generating the 
income for the Federal Government based on your subcontractors. 
You must hire companies like Mr. Ramsay's annual work.
    Can you comment about the reach of your contracts? I'm 
going to ask the same thing of Shell.
    Mr. Leimkuhler. Yes, our contracts also----
    The Chair. Speak a little bit, right more directly into the 
mic.
    Mr. Leimkuhler. Our contractors span across pretty much the 
entire country. The Delta House facility we're putting in has 
contracts existing, I believe it's close to 38 of the 50 
States. So it has a national impact. It's a multibillion dollar 
facility going in place.
    Why we can't get the necessary attention to understand the 
importance of it? I don't know as well.
    I think it's a matter of the fact that we, as an industry, 
to be blunt, probably have done a poor job of selling the 
Nation on the importance on the role that we actually play. 
There's a high degree of lack of awareness. I wouldn't' go so 
far to say ignorance, but maybe that's what--the word that 
needs to be used.
    Just an overall lack of awareness of the role we play, the 
impact we have and the positive impacts that could be realized 
if we were able to expand more.
    The Chair. Mr. Satterlee, for Shell?
    Mr. Satterlee. We did an after look after we constructed 
our Perdido platform in the Gulf of Mexico. We found that money 
that was expended for fabrication was spent by vendors all 
across the country. I don't have that number in front of me 
right now, but I can get that for you. Somewhere on the order 
of a couple billion dollars was spent in other States. So the 
whole Nation is benefiting from the work that we do here in the 
Gulf of Mexico.
    Mr. Satterlee. So to answer your question I think that it's 
probably just a matter of the rest of the Nation does not 
understand the benefits that they receive from the work that we 
do in the Gulf.
    The Chair. Thank you very much.
    Let me see while they're looking for that. I had a couple 
of other questions.
    Let me talk a minute, it's a little off subject, but while 
I have both of you here about the Jones Act because you 
testified a little bit on the opposite side of this issue. We 
have our Offshore Association present.
    As you know I'm a strong supporter of the Jones Act. Really 
believe that we have to do a lot of our boat fabrication 
business and the law requires that here. But you testified, Mr. 
Leimkuhler, that in your operations are getting so large that 
you need some of these heavy lift vessels that are either not 
built here.
    Mr. Leimkuhler. Right.
    The Chair. Are they're not built here? Are they not U.S. 
manned? Could you explain that?
    Mr. Ramsay, I'd like you to comment, although I know this 
isn't the hearing about the pros and cons of the Jones Act, but 
I just, since you all are sitting right next to each other I 
thought I'd get the benefit of your thinking on this.
    Mr. Leimkuhler. I think--let me recap a recent experience 
for a discovery we had called power ball where we went to 
install the facilities.
    The top signs that were to be installed on the jack and 
platform, all of the equipment is hauled to location on U.S. 
side vessels. But once it arrives it has to be assembled. When 
we make the lift we can't find U.S. flag vessels capable of 
making that lift.
    So what we had to do in this particular project is we had 
to actually disassemble the platform into smaller pieces, make 
more lifts, more complex lifts in order to meet the 
interpretation of the Jones Act where you have to use a U.S. 
flag vessel to not only haul the materials to location. That's 
not been an issue.
    But you also must use a U.S. flag vessel to lift and then 
transport about that 100 feet.
    The Chair. OK.
    Mr. Leimkuhler. It's only moving about 100 feet.
    The Chair. So you're looking for a short--a small 
exemption.
    Mr. Leimkuhler. Right.
    The Chair. To move equipment around, basically, a platform 
site, not back and forth, but around.
    Mr. Leimkuhler. Exactly. Once all the vessels are on 
location just to lift and place. That's all we're asking for.
    The Chair. Mr. Ramsay.
    Mr. Ramsay. Thank you, Madame Chair, for putting me on the 
spot. I'm a valued customer.
    [Laughter.]
    The Chair. Good. I'm glad you all aren't the only ones that 
have difficulty. I do as well with my constituents. So go right 
ahead.
    [Laughter.]
    Mr. Ramsay. Of course as a vessel operator we support a 
very strong Jones Act. We feel it's a good thing for this 
Nation, great for our economy, absolutely necessary for our 
defensive stance around the rest of the world.
    You know, I don't have heavy lift vessels. I understand the 
question that is being discussed here. I think that over the 
years there has not been a real clear and transparent waiver 
process to allow the operators to get past this little 
question.
    I think if Homeland Security and Border Patrol, Customs, 
Border Control and Customs could somehow devise a transparent 
waiver process to allow that then that would give the customers 
a chance to make these lifts. It also would indicate to the 
domestic industry just where we need to go with our 
construction.
    The Chair. A limit to--right.
    A limit to what could be done or give some signals, a more 
transparent process.
    Mr. Ramsay. Give us some signals as to what the industry 
needs as far as equipment and we can build it to make sure that 
we can do these lifts.
    The Chair. OK. Thank you all.
    Let me give you these numbers.
    In 2011 the Federal Government received from offshore 
alone, $6,442,000,000
    In 2013 it was $8.5, $8.6 billion.
    In 2014, I think this number went up so it was probably 
closer to $9 billion. That's annually. So let's just, you know, 
say, let's rough it at $8 billion, roughly, is what the Federal 
Government has been receiving each and every year. So over a 
10-year period that's $80 billion, when you think about a small 
percentage of that, 10 percent, 20 percent or 30 percent.
    Now the interior States keep 50 percent. OK? That's $40 
billion. The interior States would keep and have no 
restrictions on its expenditure. They have no restrictions.
    They can spend it for environmental.
    They can spend it not for environmental.
    They can spend it for energy or not.
    They can spend it for schools, health care.
    No restrictions.
    But assuming we adopted restrictions to just energy, 
infrastructure, coastal restoration. What could we do with $40 
billion? A lot.
    What could we do? Do you want to say what we could do, Mr. 
Chiasson?
    Mr. Chiasson. We could build LA 1.
    The Chair. Build LA 1. I could build----
    [Laughter.]
    Mr. Chiasson. $300 million, that's it.
    The Chair. We could build LA 1. We could build I49 South.
    Mr. Chiasson. I49, exactly.
    The Chair. I49 South. We could do all the dredging we 
needed to grow and expand the industry in a more safe and, you 
know, with more safety in mind for workers, for the 
environment, for businesses. I mean, we could build the flood 
protection that's necessary. We could restore the marshes.
    With 50 percent we could do just an enormous amount. But 
even with 10 percent of that money or 20 percent of that money, 
we could do some very important reinvestments back into the 
region that's producing these riches for the country.
    So this has been, I think, an excellent hearing. I'd like 
to ask each of you all to do just a 30 second wrap up if 
there's something that you wanted to cover that you didn't.
    The record of this hearing will stay open for another 2 
weeks which is the custom. We'll receive records from anyone 
that testified. You want to add addendum to your record or any 
other individuals that want to add anything to this record.
    The Chair. I'll be conducting some more field hearings 
around the country on our next 5 year plan which is 2017 to 
2022 OCS plan to make sure we get it right.
    What's opened? How it's opened? How the revenues are 
shared? How those revenues are invested? New regulatory 
framework that makes the development work more efficiently.
    While this hearing was focused on oil and gas development 
because that's what our region does, there are other types of 
resource development, wind, some solar opportunities. There's 
some geothermal opportunities that we're hearing about. I'm 
going to be asking in other regions of the country, what are 
some of the other resources that could be developed, energy 
resources, developed offshore.
    If you all have any additional information to share about 
that, you should submit them in the record.
    The Chair. But we'll start, maybe, with Mr. Chiasson first 
and then close with Mr. Satterlee.
    Any additional comments, Mr. Chiasson?
    Mr. Chiasson. I just think it's important to point out I 
wouldn't be a good port director if I didn't point out some of 
the things when it talks about how important Port Fourchon 
itself is to our Nation and our national economy.
    You talked about other ports along the Gulf Coast and there 
are significant amount of other ports that service the oil and 
gas industry, but in a study that you actually helped 
commission from the Department of Homeland Security back in, I 
believe, 2011 it came out. It stated that if you combine all 
the other ports along the Gulf Coast, compare it to Port 
Fourchon, the services that it can provide. They only match up 
to 25 percent of the services that Port Fourchon can provide.
    So our port----
    The Chair. To the deep water or to the offshore or deep 
water?
    Mr. Chiasson. To the offshore oil and gas industry.
    The Chair. Offshore.
    Mr. Chiasson. So we have 75 percent more capability at Port 
Fourchon. So we focus solely on the oil and gas industry. So 
that's the importance there.
    You talked about economic impacts and numbers. Our port has 
about $27 to $30 million in business sales annually. Oh, I'm 
sorry, daily impact on the national economy. So that's really 
important to note.
    The Chair. Excellent.
    Mr. Chiasson. Thank you.
    The Chair. Neil?
    Mr. Malbrough. One of the things I'd like to add is just 
when in my presentation I talked about the group of ports and 
how they work together and how they needed to work together. It 
was interesting when we talk about 8 and 10 and 12,000 ton 
topsides, these big, big topsides that we showed a few pictures 
of, is a lot of--even if they built at McDermott shore or at 
Gulf Island's yard or at Dynamics yard. All of the ports, a lot 
of those facilities, we were in New Iberia, what, a couple of 
weeks ago, 3 or 4 weeks ago.
    A lot of that equipment you saw was going on wells, 
platforms that were built somewhere else. So a lot of the small 
pieces, if you when you interview some of the Vermillion port 
folks, they are subcontractors to the big fabricators. So all 
of these pieces get put when it looks like it's delivered out 
of Houma or delivered out of New Iberia when in fact there's a 
whole number of those smaller ports that need to be connected 
to those, the infrastructure needs to connect those things, to 
keep them all. Because when you see a big platform in Houma a 
lot of those pieces are built in Vermillion and in other areas, 
in Abbeville and other pieces are built in different places. So 
it's not just one port.
    The Chair. Are we building?
    Right.
    Mr. Malbrough. In one little region.
    The Chair. So it's important.
    Also for the redundancy, you know, in the event we get, you 
know, when you're in a situation like we are in a storm, a 
frequent storm situation. You literally cannot have all of your 
rigs in one basket.
    Mr. Malbrough. Exactly.
    The Chair. Because you could get into serious trouble if 
you had all of your rigs or production. So it's important to 
have that redundancy across the Gulf of Mexico just for that 
reason and across Louisiana as well.
    But do we build? How much of our fabrication is being built 
here and going overseas? Do we have some of it that's being 
built here and floated in other parts or is mostly the work 
that we do here for the Gulf?
    I mean, I know most of it is for the Gulf.
    Mr. Malbrough. Yes.
    The Chair. But we do some international.
    Mr. Malbrough. There is in the fabrication side which is 
generally, the work we do is in channel depth, is centered in 
and around the fabrication side. There is a lot of equipment 
and a lot of things that are shipped to the North Sea.
    The Chair. Yes.
    Mr. Malbrough. Other areas.
    In the Corps of Engineers analysis of the economic boom 
they used the--a lot of those countries have utilization 
requirements where the--it looks like it on paper that the 
equipment is built, has to be built in Nigeria, as an example, 
in one of these foreign countries.
    What happens is you end up having a company there that subs 
out our local fin. We ship a lot of equipment overseas to those 
areas that in fact looks like it's done in the Nigeria area, 
but it's really not. It's on the----
    The Chair. This is very important testimony to get on the 
record. I'd like you, Neil, as from representing one of the 
largest companies in the world to please give us some 
additional information for that because when we talk about this 
work being done along the Gulf of Mexico it's not just for the 
Gulf of Mexico. It's for drilling operations all over the 
world.
    The Chair. We know that our technology is used all over the 
world, clearly, which is a great benefit. But our actual 
fabrication and equipment that is built here, the steel that 
comes into our ports is fabricated and used all over the world 
for drilling. I think sometimes we don't get the credit that we 
deserve for that because it's not easily dissected in the 
economic data.
    But it's important, again, getting back to what Mr. 
Leimkuhler said, so we can be more effective advocates for this 
region. It's not just jobs here. It's jobs all over the United 
States. It's just not facilities or platforms that we're 
building and rigs that we're using in the Gulf. This is used 
all over the world.
    So if the world is interested in energy the Federal 
Government of the United States needs to support the energy 
coast here in a much more robust way than they are currently 
doing. That has been my message. We're building a record so 
that this message can be received and heard in a way that will 
move a political organization like the Congress to do something 
about it and not just ignore it and go on with business as 
usual.
    Business as usual is clearly not going to work for the Gulf 
States. I mean we will not be here if it's business as usual 
because of the pressures on this coast from a variety of 
different perspectives. That's not the subject of this hearing, 
but we all know the coastal challenge to our coastal 
restoration and marshes that are underway. The challenges to 
our cities, to Houma, to New Orleans, to Lafayette, to New 
Iberia, to Delcom, to Lake Charles, to Cameron, Johnson Bayou, 
etcetera, etcetera, all the way to the tail of Plackman Parish.
    Mr. Ramsay, do you have any closing remarks?
    Mr. Ramsay. Yes, with that in mind, you know, this region 
being so important to energy production here in this country 
and worldwide, you know, even though this region has a very 
skilled work force it's an aging one. We're struggling to feed 
that pipeline. We could use increased funding from the 
Department of Labor for grants for training, advancement and 
retention such as, you know, the State incumbent worker 
program.
    You know, these are great jobs. They pay $50, $60, 
$100,000, you know, in 4 to 5 years for these kids that come 
straight out of high school. I think, you know, the partnering 
with the technical and community colleges is important, but we 
should do more as well.
    You know, the STEM is the new education term, science, 
technology, engineering and math programs, you know, is being 
touted around by everybody in the country. But those students 
in our elementary schools and our high schools need to be 
exposed to this industry. It's a great industry to be involved 
in. It's a very promising thing.
    So any help along those lines will be appreciated.
    The Chair. Thank you for raising that. The work force 
issues are just tremendous, the challenges for our area, for 
the country. We've conducted--I've conducted in a different 
role as Chair of the Homeland Security Committee and just in an 
economic development, you know, hat on the challenge for our 
work force.
    Thank you for raising that. It is important.
    Mr. Leimkuhler.
    Mr. Leimkuhler. I guess if I had to close with one closing 
comment it would be really around the empowerment of the 
technical staff of the regulators. These are very competent 
people. But at sometimes when we manage through issues and 
challenges with them you feel like their hands are tied a 
little bit.
    It's going to be essentially for healthy staff empowered if 
we were to move to a performance based standard of regulations 
rather than a prescriptive. You shall do this. You shall do 
this. You shall do this.
    Under a prescriptive regime it doesn't fit every situation. 
You get into situations where from a risk and a safety 
standpoint you need a variance. It's difficult sometimes to 
obtain those because the staff just don't feel as empowered as 
I think they need to be.
    The Chair. Excellent.
    Mr. Satterlee.
    Mr. Satterlee. As we move into more frontier areas such as 
Alaska and the Atlantic and the Eastern Gulf of Mexico it's 
important to recognize that if we can do it safely then we're 
confident that changes have been made to prevent another 
reoccurrence of a blowout, an oil spill. Then we can do it in a 
way that protects the environment, protects our personnel.
    Second, from an economic standpoint Shell has spent over $5 
billion in Alaska so far. We still don't have our permits. If 
all the building blocks are put in place and we're able to get 
our permits and we have a discovery that's only going to be a 
sliver of what our company and other companies will spend in 
the development of the Arctic.
    The same holds true in other frontier areas.
    In Alaska what we found was a very large amount of what we 
spent came from Louisiana. We built 2, at least 2, OSVs right 
here in Louisiana. Much of our man power came from Louisiana, a 
lot of the equipment.
    We'll see the same thing in the Atlantic. They just don't 
have those kind of capabilities on the Atlantic Coast. So much 
of that will have to come from the Gulf Coast.
    The Chair. So the opportunity for opening Alaska, opening 
the Atlantic Coast, the opening of Mexico, is going to position 
Louisiana to be an extraordinary provider.
    Mr. Satterlee. Right.
    The Chair. Of technology, equipment, personnel. But the 
challenges, work force, infrastructure, regulatory regime, and 
just basic investments. So they are great opportunities, but 
they are great challenges. Thank you all very much for 
contributing to this record.
    The field hearing is adjourned.
    [Whereupon, at 3:40 p.m. the hearing was adjourned.]

                                    

      
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